AXT (AXTI) is back in focus after reporting robust revenue and backlog tied to indium phosphide substrates for AI and hyperscale data centers, alongside plans to double production capacity through 2027.

Despite the strong AI related backdrop, AXT’s share price has been under pressure in the near term, with the stock down 13.68% over one day and 32.66% over 30 days, though its year to date share price return of 367.54% and very large 1 year total shareholder return indicate powerful longer term momentum from earlier enthusiasm.

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After such a sharp pullback following very large gains, AXT now trades below some analyst targets yet still carries rich expectations. Is there still a mispriced opportunity here, or is the market already baking in future growth?

Most Popular Narrative: 155% Overvalued

At a last close of $78.36 versus a narrative fair value of $30.75, the most followed thesis sees AXT priced well ahead of its modeled fundamentals, framed using a discount rate of 10.56%.

Accelerating global demand for high-speed data center connectivity and AI infrastructure is driving increased adoption of indium phosphide substrates, where AXT is a top supplier with 40% share. As export permit headwinds ease, this pent-up demand is expected to produce sharp revenue growth and improved utilization of manufacturing capacity.

Curious how that growth story translates into today’s valuation gap? Revenue ramp, margin rebuild and a premium earnings multiple are doing the heavy lifting behind this fair value.

The same narrative leans on forecasts for high revenue and earnings growth, together with a future profit margin profile and valuation multiple that differ meaningfully from current reported losses and market metrics. It is anchored on long term assumptions rather than recent volatility in the share price, and uses that 10.56% discount rate to pull those projections back into a present value estimate of $30.75 per share.

Result: Fair Value of $30.75 (OVERVALUED)

However, still keep an eye on export permit uncertainty and heavy exposure to a concentrated Chinese customer base, as either factor could quickly challenge this optimism.

Another View: DCF Points the Other Way

While the popular narrative pegs AXT as overvalued versus a $30.75 fair value, our DCF model presents a very different perspective. On this view, AXT at $78.36 is trading about 65% below an estimated future cash flow value of $222.66. This suggests the bigger risk could be underestimating the growth already priced in.

For a closer look at how those cash flows and assumptions come together, Look into how the SWS DCF model arrives at its fair value.

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out AXT for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover 46 high quality undervalued stocks. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.

Next Steps

With sentiment pulling in two directions, you do not have long to weigh up both sides and decide where you stand, so review the 2 key rewards and 3 important warning signs

Looking for more investment ideas?

If you stop your research here, you could miss stocks that better match your goals, so keep pushing for ideas that truly fit your approach.

• Target potential mispricings by scanning 46 high quality undervalued stocks that combine quality fundamentals with prices that may not fully reflect them yet.
• Strengthen income potential by reviewing 9 dividend fortresses that focus on higher yields with an emphasis on stability.
• Protect your downside by assessing 63 resilient stocks with low risk scores that score well on resilience and risk controls.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.