On Thursday, AXT, Inc. (NASDAQ:AXTI) received an upgrade from a B.Riley analyst from Neutral to Buy, with a new price target set at $3.80, up from the previous target of $2.40. The upgrade is based on the expectation that the company will benefit from the expanding artificial intelligence (AI) and datacenter markets.
AXT, Inc., a key supplier of indium phosphide (InP), is poised to capitalize on the growth of electro-absorption modulated lasers (EMLs), which are essential for building datacenters. The company's role in providing InP, a crucial material for EMLs, is expected to drive its market value, particularly as AI applications have reached a critical juncture, according to Nvidia (NASDAQ:NVDA).
The demand for high-performance transceivers, such as 800G units that will soon be followed by 1.6T in 2025, is surging. These transceivers are integral to the AI infrastructure development undertaken by hyperscalers and other enterprises. While AXTI does not foresee vertical-cavity surface-emitting lasers (VCSELs) to be a significant contributor to its growth, InP is anticipated to be a substantial factor.
The company's recent financial performance supports the analyst's positive outlook. AXTI reported fourth-quarter sales of $20.4 million with an EPS of $(0.07), surpassing the consensus of $17.6 million and $(0.13) EPS. The management has indicated that excess inventories of gallium arsenide (GaAs) have been reduced, and InP inventory levels are expected to normalize within one to two quarters.
For the first quarter, AXTI provided a revenue outlook of $20 million to $22 million with an EPS range of $(0.06) to $(0.08), which is above the consensus of $18.0 million and $(0.11) EPS. The B.Riley analyst has consequently raised the 2024 revenue estimate for AXTI from $86.8 million to $90.5 million. The new price target of $3.80 is based on an enterprise value to sales multiple of 1.8x, up from the previous multiple of 1.2x, applied to the revised 2024 revenue estimate.
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