10-K: AXT Navigates Trade Headwinds, Boosts Capital for InP Growth

AXT, Inc. reports a net loss for 2025 amid significant revenue decline and trade restrictions, while securing $100 million in new capital to fund InP substrate expansion.

Summary

• Net loss attributable to AXT, Inc. increased to $(21.26) million in 2025, compared to $(11.62) million in 2024 and $(17.88) million in 2023.
• Total revenue decreased by 11.1% to $88.3 million in 2025 from $99.4 million in 2024.
• Substrate revenue decreased by 13.1% to $58.9 million in 2025, primarily due to lower germanium wafer sales and new InP export permit requirements from China.
• Raw materials revenue decreased by 6.9% to $29.4 million in 2025, mainly from decreased purified gallium sales.
• Gross margin declined to 12.7% in 2025 from 24.0% in 2024, though it improved from a negative 6.4% in Q1 2025 to 22.3% in Q3 2025.
• Successfully raised $100 million in gross proceeds from a public offering in December 2025, significantly increasing cash and cash equivalents to $128.4 million.
• China imposed new export controls on indium phosphide (InP) substrates effective February 4, 2025, and U.S. tariffs on imports from China increased to 70% by March 4, 2025.
• Received initial InP export permits for Europe and Japan on June 11, 2025, but U.S. permits remain uncertain.
• Ongoing legal proceedings include a shareholder class action and a derivative lawsuit, which the company intends to vigorously defend against.
• The Audit Committee regained compliance with Nasdaq Listing Rules on January 30, 2026, following the appointment and subsequent determination of independence for Leonard J. Leblanc.

Sentiment

Score: 3

Explanation: StockSavvy.ai views this as a challenging period marked by significant financial losses and revenue decline, primarily driven by escalating trade tensions and export restrictions. While the successful capital raise and initial InP export permits to certain regions provide a necessary lifeline and strategic direction, the ongoing uncertainty regarding U.S. export permits and the Tongmei IPO, coupled with increased tariffs, indicates a difficult operating environment.

Positives

• Successfully completed a public offering in December 2025, raising approximately $100 million in gross proceeds, significantly boosting liquidity and capital resources.
• Received initial export permits for indium phosphide to customers in Europe and Japan on June 11, 2025, allowing for the resumption of shipments to these key regions.
• Gross margin showed an improving trend within 2025, rising from a negative 6.4% in the first quarter to 22.3% in the third quarter, indicating some operational recovery.
• Maintains a strong cybersecurity governance structure with experienced personnel, including the Chief Financial Officer, and direct Board oversight.
• Continues to invest in research and development for larger diameter wafers (8-inch GaAs and 6-inch InP) and low etch pit density (EPD) substrates, aiming for technological leadership.
• Proprietary Vertical Gradient Freeze (VGF) technology and a vertically integrated supply chain provide competitive advantages, reliable raw material supply, and market trend visibility.
• Successfully deployed an InP recycling process in 2022 and developed a GaAs recycling program, contributing to lower manufacturing costs and environmental benefits.
• Management reasonably expects that export permits for indium phosphide substrates to the U.S. will be granted, as InP is rarely used in military applications.
• The Board of Directors successfully addressed Audit Committee non-compliance, with Mr. Leonard J. Leblanc determined to be independent as of January 26, 2026, restoring full compliance with Nasdaq Listing Rules.

Negatives

• Net loss attributable to AXT, Inc. increased to $(21.26) million in 2025 from $(11.62) million in 2024, indicating worsening profitability.
• Total revenue decreased by 11.1% in 2025, from $99.4 million in 2024 to $88.3 million, reflecting a significant downturn in sales.
• Gross margin substantially declined to 12.7% in 2025 from 24.0% in 2024, primarily due to lower revenue volumes and manufacturing variances.
• North American revenue plummeted by 77.5% in 2025, largely attributable to China's new InP export permit requirements and increased U.S. tariffs.
• China's new export controls on gallium, germanium, and indium phosphide substrates created significant administrative burdens, extended order fulfillment cycles, and increased legal costs.
• U.S. tariffs on wafer substrates imported from China increased substantially throughout 2025, reaching 70% by March 4, 2025.
• No permits for gallium arsenide exports to the U.S. have been approved, as U.S. customers are considered 'dual use' (commercial and military applications).
• Equity in income of unconsolidated joint ventures decreased significantly by 77.8% in 2025, impacted by export restrictions and increased domestic competition for gallium.
• Research and development expenses decreased by 37.8% in 2025, potentially impacting the pace of future innovation and product development.
• Ongoing shareholder class action and derivative lawsuits pose legal and reputational risks, diverting management attention and resources.
• Redeemable noncontrolling interests of approximately $49 million could be subject to redemption if the Tongmei IPO fails, potentially requiring the company to seek additional capital.
• Incurred a foreign exchange loss of $74,000 in 2025, highlighting exposure to currency volatility.

Risks

• Global economic and political conditions, including trade tariffs, import-export restrictions, and other restrictions, may negatively impact business and financial results, with China's requirement of export permits for InP being a current example.
• The PRC central government may intervene in or influence PRC operations at any time, and rules and regulations in China can change quickly with little advance notice, potentially affecting operations or stock value.
• There is no guarantee that future audit reports will be prepared by an independent registered public accounting firm that is completely inspected by the PCAOB, which could lead to delisting from NASDAQ.
• The NASDAQ stock price is volatile, and unpredictable fluctuations in operating results, export permit requirements, changes in end markets, and global trends can cause stock price declines.
• Litigation and legal proceedings, such as the shareholder class action and derivative lawsuit, could adversely affect business, financial condition, results of operations, or cash flows.
• Changes in China's political, social, regulatory, or economic environments may affect financial performance, including policies on hazardous materials, environmental controls, and foreign investment.
• The Chinese central government's efforts to improve air quality and reduce environmental pollution can impact manufacturing, including intermittent mandatory shutdowns, which may result in declines in gross margins.
• Escalating and volatile trade tariffs, import restrictions, export restrictions, Chinese regulations, or other trade barriers may materially harm the business.
• Restrictions on freight and transportation routes and on ports of entry and departure in China could result in shipping delays or increased costs for shipping.
• International operations are exposed to potential adverse tax consequences in China, including transfer pricing challenges and VAT assessments.
• Gross margin has fluctuated historically and may decline due to factors such as product mix, unit volume, yields, raw material costs, tariffs, and manufacturing efficiencies.
• The proposed Tongmei IPO on the STAR Market in China could fail to be completed, resulting in investor disappointment and failure to secure sufficient capital.
• The terms of the private equity raised by Tongmei grant each investor a right of redemption (approximately $49 million) if the IPO fails, which could require the company to disgorge cash.
• Defects in products could diminish demand, lead to rejections, compensation costs, and possible disqualification from customers.
• Difficulties in accurately estimating market demand could result in over-investing in inventory, equipment, and capacity expansion or losing market share if investments are insufficient.
• Attracting and retaining tier one customers requires success in research and development programs to meet difficult product specifications, which may not always be achieved.
• The company is subject to foreign exchange gains and losses that may materially impact consolidated statements of operations, particularly during periods of currency volatility.
• Joint venture raw material companies in China bring certain risks, including operational problems of partners, government orders to shut down, and potential litigation.
• Unforeseen manufacturing issues and restrictions at new manufacturing sites could occur, leading to production disruptions and adverse impacts on revenue and financial condition.
• New silicon-based technologies (e.g., SOI) could enable silicon-based substrates to replace specialty material-based substrates for certain applications, reducing sales.
• The loss of one or more tier one substrate customers would significantly hurt operating results due to their substantial contribution to revenue.
• The average selling prices of substrates may decline over relatively short periods due to increased competition, overcapacity, and new product introductions, reducing revenue and gross margins.
• Strategic investments in raw materials suppliers may not be successful and could result in the loss of all or part of the investment.
• Damage to facilities from occurrences such as fire, explosion, power outage, or natural disaster could prevent the manufacture of products.
• Long product qualification cycles make it difficult to forecast revenue from new customers or for new products, potentially leading to unplanned shortfalls.
• The cyclical nature of the semiconductor industry may limit the ability to maintain or increase net sales and operating results during industry downturns.
• Dependence on single or limited suppliers for certain critical raw materials and parts could lead to manufacturing delays or higher costs.
• The financial condition of customers may affect their ability to pay amounts owed, leading to uncollectible receivables and reduced earnings.
• Dependence on the continuing efforts of the senior management team and other key personnel, with risks of loss or inability to recruit qualified replacements.
• Ineffective inventory management could result in excess or obsolete inventory, leading to charges that reduce gross profit and gross margin.
• The effect of terrorist threats and actions on the general economy could decrease revenue, particularly given all manufacturing operations are in China.
• Uncertainty regarding United States foreign policy, particularly with regards to China, could disrupt business operations.
• Risks related to health epidemics and other outbreaks, such as COVID-19, could significantly disrupt business operations and financial performance.
• Financial market volatility and adverse changes in the domestic, global, political, and economic environment could have a significant adverse impact.
• The PRC central government may exert more control over overseas offerings and/or foreign investment in China-based issuers, potentially limiting the ability to offer securities.
• PRC subsidiaries and joint ventures are subject to data security oversight by the Cyberspace Administration of China (CAC), which could require costly changes to practices.
• Potential suits for personal injuries caused by hazardous materials could lead to substantial liabilities, fines, or operational restrictions.
• Compliance with internal control evaluations and attestation requirements of Section 404 of the Sarbanes-Oxley Act is complex, costly, and extends to China operations.
• The ability to use net operating loss carryforwards and certain other tax attributes may be limited due to ownership changes under Sections 382 and 383 of the Internal Revenue Code.

Future Outlook

The company anticipates increased demand for InP substrates driven by AI applications and 5G infrastructure, and hopes to complete Tongmei's STAR Market IPO in the coming months, pending regulatory approvals. While management expects InP export permits to the U.S. to be granted due to its limited military use, the timing remains uncertain. The company foresees continued volatility in average selling prices and expects recurring cycles of strong and weak demand for its substrates. It will continue to monitor macroeconomic conditions and trade policies, and believes it has adequate cash for operating needs and capital expenditures over the next twelve months, with no current plans for common stock dividends or further share repurchases.

Management Comments

• We believe our InP substrates have the lowest defect densities and lowest stress and slip lines on the market and are best in class.
• We believe our success in managing this process now positions us as the go to supplier with a state of the art manufacturing line, a proven ability to add capacity and a commitment to continuous improvement.
• We believe the quality of our low EPD wafers will enable us to support new applications and generate additional revenue.
• We believe that we are the only compound semiconductor substrate supplier to have a position in raw materials.
• We believe the combination of access to both the U.S. and China capital markets presents a strong position to our customers and gives us an advantage over our competitors.
• We believe our long-term investment in research and development has resulted in a substantive body of proprietary knowledge.
• To our knowledge, indium phosphide is rarely used in military applications and we can reasonably expect that export permits to ship our indium phosphide substrates to the U.S. will be granted.
• We believe that we have adequate cash to meet our operating needs and capital expenditures over the next twelve months.

Industry Context

StockSavvy.ai notes that AXT operates in a niche but growing segment of the semiconductor industry, specializing in compound and single-element substrates where silicon falls short. The increasing demand for high-speed data transfer driven by AI applications and 5G infrastructure is a significant tailwind for InP substrates, positioning AXT favorably if it can navigate geopolitical trade tensions. The company's vertically integrated supply chain in China, while offering cost advantages and supply reliability, also exposes it to unique regulatory and political risks, a common challenge for companies with significant operations in the region. The competitive landscape includes larger players like Sumitomo and JX, highlighting the importance of AXT's proprietary technology and customer support.

Comparison to Industry Standards

• AXT claims its InP substrates are 'best in class' with the lowest defect densities and stress/slip lines, enabling highest wafer fab and device yields for customers, suggesting a competitive edge over other primary suppliers like Sumitomo Electric Industries, Japan Energy (JX), and Freiberger Compound Materials.
• The company believes it can be the 'dominant supplier in the emerging 6-inch diameter market' for InP, indicating a focus on larger diameter wafers which the industry is increasingly demanding, potentially outpacing competitors in this specific segment.
• AXT states it is 'the only compound semiconductor substrate supplier to have a position in raw materials,' providing a unique vertically integrated supply chain advantage over competitors like Umicore, China Crystal Technology Corp. (CCTC), and Vital Materials, which may rely more heavily on external raw material sourcing.
• The company's VGF (Vertical Gradient Freeze) technology for crystal growth is highlighted as proprietary, with at least two competitors shipping GaAs substrates using a similar process, suggesting AXT maintains a technological lead or parity in this area.

Management Changes

Corporate Governance

Legal Proceedings

• A putative shareholder class action complaint was filed on May 6, 2024, alleging violations of federal securities laws (Sections 10(b) and 20(a) of the Exchange Act and Rule 10b-5) against AXT, its CEO, and CFO, with a class period from March 24, 2021, to April 3, 2024. Defendants' motion to dismiss is currently pending.
• A derivative lawsuit was filed on August 22, 2024, by an alleged shareholder against current and former directors and officers, alleging breaches of fiduciary duties based on the same allegations as the class action. The court granted the motion to dismiss on March 17, 2025, but the plaintiff appealed to the Court of Appeals for the Ninth Circuit on May 13, 2025, with briefing ongoing.
• The company believes these claims are meritless and intends to vigorously defend against them, but acknowledges that litigation can be expensive, lengthy, disruptive, and could damage its reputation or stock price.

Related Party Transactions

• ChaoYang XinMei, a consolidated subsidiary, received funding from a minority investor in September and October 2021, initially recorded as short-term loans, and later received equity investments from Tongmei in December 2021 and January 2022.
• Tongmei entered into a Capital Increase Agreement with minority investors in April 2022 to further invest approximately $4.5 million in ChaoYang XinMei, with both Tongmei and minority investors contributing funds through July 2022.
• ChaoYang LiMei, a consolidated subsidiary, sold land and attached buildings to ChaoYang KaiMei, an equity investment entity, for $1.5 million in September 2022, with payment received in January 2023.
• Executive officers retain board seats on the Board of Directors of the PRC joint ventures.
• Aggregate dividends paid to AXT (directly or to an intermediate entity) by PRC subsidiaries and PRC raw material joint ventures were approximately $0.9 million in 2025, $2.4 million in 2024, and $4.3 million in 2023.
• Xiaoyi XingAn distributed dividends of $1.8 million in April 2023 and $2.1 million in May 2024.
• JiYa distributed dividends totaling $2.5 million in 2023, $0.3 million in 2024, and $0.9 million in April 2025.
• No dividends were paid to minority shareholders by PRC subsidiaries or PRC raw material joint ventures in 2025 and 2024.
• Amounts owed under transfer pricing arrangements are settled in the ordinary course of business.
• Cash generated from one PRC subsidiary is not used to fund another PRC subsidiary's operations.

Stakeholder Impact

• Shareholders face negative impacts from increased net loss, revenue decline, and stock price volatility, but benefit from the successful $100 million capital raise. There is a risk of further stock price decline due to trade tensions, Tongmei IPO failure, or adverse litigation outcomes. Realization of investment gains depends on stock price appreciation, as no common stock dividends are planned.
• Employees (1,541 in total across AXT and consolidated raw material companies) are provided competitive compensation and benefits, with most China employees (1,383) represented by unions and good relations reported. However, there is a risk of workforce reductions if restructuring is needed due to underutilization.
• Customers are impacted by export permit requirements and tariffs, leading to extended order fulfillment cycles and potential changes in sourcing policies. The company faces a risk of losing sales if product qualification or volume requirements are not met.
• Suppliers, particularly those providing critical raw materials, are managed through a vertically integrated supply chain designed to ensure reliable supply and shorter lead-times, mitigating some supply chain risks.
• Creditors benefit from the improved liquidity provided by the recent capital raise, which may reduce credit risk associated with the company's bank loans and credit facilities.
• Regulatory bodies (SEC, PCAOB, Nasdaq, and various PRC government agencies) continue to oversee the company's compliance with evolving regulations related to trade, environmental controls, data security, and financial reporting, posing ongoing compliance risks and costs.

Next Steps

• Actively monitoring and following up on the status of InP export permit applications to the U.S.
• Tongmei hopes to accomplish its STAR Market IPO in the coming months, subject to CSRC and other authorities' review and approval.
• Will continue to provide strategic support to raw material companies to strengthen the supply chain.
• Plan to further promote the brand image of diverse and custom products.
• Seek to continue leveraging China-based manufacturing advantages by increasing efficiencies in manufacturing methods, systems, and processes.
• Plan to use deep knowledge in specialty materials to seek new applications for existing substrates and explore additional materials synergistic with knowledge base, customer needs, and manufacturing lines.
• Intends to increase the level of automation, particularly in cleaning wafers.
• The U.S. government has indicated it may pursue additional or replacement tariffs under alternative legal authorities, including temporary measures under Section 122 of the Trade Act of 1974.
• The annual meeting of stockholders is to be held on May 14, 2026.

Key Dates

Recommendation

AXT, Inc. faces significant headwinds from escalating U.S.-China trade tensions, including export controls and tariffs, which have severely impacted revenue and profitability, particularly in North America. The company reported an increased net loss and a substantial decline in gross margin for 2025. However, the successful $100 million capital raise provides crucial liquidity for strategic investments, especially in InP capacity, which is vital for emerging AI and 5G applications. While the long-term potential in specialty materials remains, the immediate future is clouded by geopolitical uncertainties, the lengthy Tongmei IPO process, and ongoing legal challenges. A 'Hold' recommendation reflects the high-risk, high-reward scenario: the company has secured funding and has a strong technological position in critical materials, but the external operating environment presents formidable, unpredictable challenges that could continue to depress financial performance. Investors should monitor progress on export permits, the Tongmei IPO, and any de-escalation of trade tensions.

Keywords

Semiconductor substrates, Indium Phosphide (InP), Gallium Arsenide (GaAs), Germanium (Ge), Wafer manufacturing, China export controls, Trade tariffs, STAR Market IPO, Supply chain, Data centers, 5G, AI applications, Optoelectronics, Financial results, SEC filing, 10-K, Materials science, Compound semiconductors, Raw materials, Corporate governance, Cybersecurity, Legal proceedings