AXTI: The Quiet Kingmaker of AI’s Next Phase
The AI Industry’s Silent Chokepoint: InP Substrates
Warning: The entire AI industry is quietly bottlenecked by just two companies:
AXTI (~USD $908M market cap)
SMTOY (~USD $31.8B market cap)
$Sumitomo Electric Industries Ltd.(SMTOY)$
Together, they control 60–70%+ of the world’s Indium Phosphide (InP) substrates.
This matters because the next generation of AI infrastructure—NVIDIA GPUs, Google TPU v7 pods, Meta, Microsoft, and Amazon hyperscaler clusters—depends on InP-based lasers and receivers.
Companies like Broadcom, Lumentum, and Coherent rely on InP substrates for:
EMLs used in 800G / 1.6T transceivers
DFB lasers
Core optical interconnect infrastructure
Without InP substrates, the entire photonics supply chain stalls.
InP was once a niche telecom material. Almost overnight, it has become a national security–level dependency, forming the backbone of the world’s lasers and optical interconnects.
What’s more alarming is that top-level vendors may not fully appreciate the scale of this risk. For example, hyperscalers signing long-term agreements with optical module suppliers (e.g., LITE) may not have traced the dependency all the way down to the substrate layer—where supply is effectively controlled by just two players.
Google’s TPU v7 ramp is a case in point. Its heavy reliance on optical circuit switching (OCS) for chip pods placed unprecedented strain on the InP supply chain—pressure that simply didn’t exist months ago.
As copper interconnects hit physical limits, the AI industry’s dependence on AXTI in particular starts to look like a single point of failure—with a small-cap materials supplier sitting underneath trillion-dollar compute roadmaps.
This isn’t about near-term revenue forecasts. It’s about structural fragility.
At 1.6T networking speeds, the system breaks without InP.
From here, hyperscalers will likely try to:
Hoard substrates
Lock in multi-year supply agreements
Push for alternative materials or domestic capacity
But no matter the approach, the reality remains: two companies currently hold the cards.
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- Ah_Meng·01-04TOPInP substrate? 🤔 Hmm… will look into it… what is the entry barrier like? Why are there only 2 players? No demand until recently?1Report