AXT's Q4 Results Confirm Export Permit Volatility, Reinforcing High-Risk Profile

What happened

AXT Inc. announced its fourth quarter and fiscal year 2025 financial results, with management expressing disappointment over receiving fewer export permits than expected in Q4, though they noted some permits have been granted in early 2026 and anticipate sequential revenue growth. The company's performance is acutely sensitive to Chinese export approvals, as demonstrated by the Q3 2025 rebound to $28 million revenue and 22.3% gross margin when permits cleared, highlighting its operational leverage. However, the Q4 permit shortfall likely kept revenue below the $27-30 million quarterly range critical for sustaining the bullish narrative around AI-driven InP demand. Despite management's optimistic tone, this recurring issue exposes AXT's lack of control over regulatory headwinds and aligns with the DeepValue report's warning of unproven earnings power. Consequently, the stock's valuation at $22.09 remains precarious, emphasizing the need for investors to monitor permit consistency and margin sustainability closely.

Implication

The Q4 permit disappointment reinforces that AXT's revenue is gated by external regulatory approvals, threatening its ability to consistently monetize the $49 million InP backlog and achieve the $25-30 million quarterly revenue needed for margin recovery. Persistent negative free cash flow and working capital strain, as highlighted in the DeepValue report, could intensify if permit delays recur, increasing liquidity risks and potential equity dilution. With the stock priced for a smooth ramp, any sustained permit issues elevate the probability of the bear case scenario at $13 implied value, compressing multiples. Management's forward-looking optimism should be critically assessed, as it does not mitigate the structural dependency on unpredictable export controls and tariffs. Therefore, adhering to the DeepValue report's 'POTENTIAL SELL' rating and trim above $28 is prudent, with reassessment contingent on evidence of durable revenue above $27 million and gross margins exceeding 20% over multiple quarters.

Thesis delta

The new article does not shift the core investment thesis; it corroborates the DeepValue report's emphasis on export permit volatility as a key risk. It slightly reinforces the bear case by highlighting Q4 underperformance, but the overall thesis remains that AXT is overvalued given its operational fragility and lack of earnings power, with no material change to the probability-weighted scenarios.