The optics trade is moving sharply higher on Monday. At about 1:23 p.m. ET, AXT (NASDAQ: AXTI) was up roughly 16.3% to $94.95, Coherent (NYSE: COHR) was up 9.6%, and Lumentum (NASDAQ: LITE) was up about 6.4%. The newly launched Roundhill Photonics & Optics ETF (CBOE: LYTE) was up nearly 6.9%.
The spark is a new report from Taiwan’s Economic Daily News pointing to a worsening shortage of indium phosphide, or InP, substrates and epitaxial wafers used throughout the optical communications supply chain. Industry sources cited by the publication expect another round of price increases in the fourth quarter, potentially above 10%. That figure is not an official supplier price announcement, but it lands at a moment when AXT, Coherent, and Lumentum are already telling investors that AI data-center demand is pushing optical capacity higher.
Named Taiwanese beneficiaries in the UDN piece include Visual Photonics Epitaxy, LandMark Optoelectronics and IET-KY. None are US-listed, so treat those as supply-chain color rather than investable tickers in most brokerage accounts.
Why AXT Is at the Center of the InP Squeeze
AXT is the most direct U.S.-listed play on the substrate side of this story. The company manufactures indium phosphide wafers used in data-center connectivity, high-speed optical transmission, lasers, silicon photonics, and other applications. In Q2, AXT reported record quarterly revenue of $47.6 million, up from $18.0 million a year earlier, while GAAP gross margin jumped to 44.9% from 8.0%. Management also said the quarter produced the highest indium phosphide revenue in company history. The connection to AI is straightforward: more GPU clusters require more high-speed optical links, and those links increasingly depend on photonic components built using materials such as InP.
That makes reports of tighter InP availability potentially favorable for AXT’s pricing power, but investors should not assume higher industry prices flow directly into higher profit. AXT still has to manufacture enough wafers, maintain yields, manage costs, and get products where customers need them. Its June 10-Q calls Chinese export permits for InP substrates the company’s most significant current challenge and says the timing of approvals remains uncertain. In other words, the shortage creates opportunity, but it also highlights the exact supply-chain constraint AXT has to navigate.
Coherent and Lumentum Are Riding the Same AI Wave, but the Economics Are Different
Coherent and Lumentum sit farther downstream, so rising substrate prices are not automatically good news for them. InP is an important input into the lasers and photonic devices they sell. What investors appear to like is the demand signal behind the shortage. Coherent reported $2.05 billion in fiscal Q4 revenue, up 34% year over year, with a 38.5% GAAP gross margin. The company says customer demand remains strong enough that it is prioritizing additional manufacturing capacity. Coherent also announced a planned expansion of its Sherman, Texas, InP facility that is expected to quadruple wafer-production capacity when completed.
Lumentum’s numbers tell a similar story. Fiscal Q4 revenue reached $1.01 billion, up 109.3% from a year earlier, with a 47.4% GAAP gross margin and 50.4% non-GAAP gross margin. Management expects fiscal Q1 revenue of $1.225 billion to $1.275 billion. The supply relationship with AXT is also more concrete than a simple industry connection: AXT disclosed a six-year InP capacity-reservation agreement with Lumentum, including an initial $43.5 million deposit and another $43.5 million deposit contemplated for 2028. That agreement is a useful piece of evidence that securing future InP supply has become strategically important.
AXT’s Rally Has Raised the Stakes for Investors
The operating results are improving quickly, but AXTI’s stock price has moved even faster. At Monday’s intraday price, AXT carried a market value of roughly $6.0 billion, compared with just $47.6 million of revenue in its most recently reported quarter. That comparison does not tell investors what the stock “should” be worth, particularly when revenue is growing this quickly, but it does show how much future expansion is already being anticipated by the market. A disappointing quarter, slower capacity growth, weaker pricing, or delays in export permits could therefore matter much more after such a large run.
The company’s balance sheet gives it resources to expand. AXT reported $412.2 million in cash and cash equivalents at June 30, plus about $303.6 million in short- and long-term investments. Much of that liquidity followed a major 2026 equity raise intended in part to support Tongmei’s InP capacity expansion. The flip side is dilution: AXT’s additional paid-in capital climbed sharply during the first half of the year, and investors should judge future growth on a per-share basis, not just by looking at higher companywide revenue and profit. That becomes especially important for retirees or near-retirees who cannot afford to treat a volatile AI infrastructure stock as a substitute for the steadier assets funding near-term expenses.
What to Watch After Monday’s Optics Rally
The first thing to watch is whether the reported fourth-quarter InP price increase actually appears in supplier contracts and company results. Economic Daily News says industry participants are discussing increases above 10%, after earlier increases of roughly 3% to 5%, but those numbers came from industry sources rather than published supplier price lists. For AXT, stronger realized pricing plus higher shipment volume would be the cleanest confirmation. For Coherent and Lumentum, investors should instead watch whether demand and selling prices are strong enough to absorb higher material costs while margins hold up.
Investors who want broader optics exposure now have LYTE, which began trading August 6. Roundhill describes it as an actively managed, concentrated photonics and optics ETF with a 0.65% expense ratio. That spreads company-specific exposure across several optics businesses, but it does not remove theme risk. The fund itself warns that photonics companies can face rapid technology changes, volatile share prices, supply-and-demand swings, and concentrated product lines. For investors protecting retirement savings, that distinction matters. Diversifying across a narrow AI theme is still very different from diversifying across the broader market.