AXT's record quarter is being repriced in Beijing, and the clock runs out December 20

AXT (Nasdaq: AXTI) opened November 5 at $47.54, about 26% below its $64.38 close of October 28 and under both its 50-day and 200-day moving averages ¹². Eight days earlier the tape told the opposite story: shares rose 7.6% intraday on October 28, adding roughly $291 million of market value, and finished the session up 10.6%, the day its Beijing manufacturing subsidiary became the story ³².

The best quarter in AXT's history, and the stock fell anyway

AXT▲+8.82% — AXT, up 8.82 percent today, a Fremont, California company, grows indium phosphide crystals and polishes them into the wafers that sit under the lasers carrying data between AI computers; most of it is made at three plants in China, run through its subsidiary Beijing Tongmei Xtal Technology ²⁴. Third-quarter revenue hit a record $73.4 million↗, up 54% from the prior quarter and 162% from a year earlier ⁴. GAAP gross margin reached 56.0% against 22.3% a year ago, and net income was $25.7 million, or 39 cents a diluted share, against a $1.9 million loss ⁴.

Indium phosphide, mostly data-center demand, supplied $54.3 million of that, backlog passed $500 million, and Lumentum▲+8.77% — Lumentum, up 8.77 percent today, an optical-components maker, prepaid $43.5 million under a long-term supply agreement ⁵. For the fourth quarter, AXT flags about $90 million of revenue it can ship on Chinese export permits already in hand or on sales that need none, at non-GAAP earnings of 57 to 59 cents a share, 56 to 58 cents on a GAAP basis ⁵.

Beijing's buyers got protections; AXTI holders keep the obligations

The agreement AXT filed on October 28↗ contains two separate subscriptions ⁶. Institutional investors led by BNK-B3 HK Holdings, an entity managed by a leading Asian asset manager, put in RMB1.91 billion to RMB3.67 billion, about $285 million to $545 million, in new Tongmei shares ⁶.

Separately, AXT recapitalizes Tongmei by subscribing for about $400 million of shares, taking total new equity to as much as roughly $945 million ⁶. At the maximum, AXT's stake falls to about 73.4%, with control and consolidation kept, and one outside investor is an affiliate of an existing customer ⁶.

Investors can put shares back at cost plus 8% a year

The buyers' protections are spelled out. The lead investor nominates one of nine Tongmei directors, with AXT naming the other eight, and takes a liquidation preference, paid ahead of ordinary shares if Tongmei is sold or wound up ⁶.

Each investor can require Tongmei to redeem its shares if no qualified IPO, an underwritten listing on an exchange that includes Hong Kong's main board priced to return at least 13% a year, completes within three years of closing ⁶. The redemption price is the money paid plus 8% a year, compounded, and AXT may elect to buy the investors out itself, in cash or in its own shares ⁶. If the minimum has not closed by December 20, 2026, the agreement terminates ⁶.

AXT has $825.9 million; the furnaces need renminbi

The parent is not short of dollars: cash and investments rose $77 million in the quarter to $825.9 million ⁵. What the raise buys is renminbi inside China, flowing, in chief executive Morris Young's words, directly into Tongmei's operations and its raw-material suppliers ²⁷.

Capacity is heading to 2.75 to 3 times its end-2025 level this year, with another doubling planned for 2027, and the company says wafer demand is "outpacing supply" ²⁵. Two Chinese gates sit in front of the added wafers: government filings must clear before the money arrives, and export permits govern what leaves the country ⁷. Six brokerages split three buy, two hold, one sell; their average target is $77.80↗ ¹.

Three things decide this trade before December 20

Watch the closing, expected this month ²; the Hong Kong filing for the qualified IPO the parties must pursue "as soon as possible" after it ⁶; and the export permits that gate overseas shipments ⁴⁷. AXTI holders bought the boom. Beijing's institutions bought the subsidiary that makes it, with a put attached.