AXT Inc's stock surged 5.31% in pre-market trading on Thursday, reflecting strong investor optimism driven by recent corporate developments and favorable industry dynamics.

The company's subsidiary, Beijing Tongmei Xtal Technology, recently entered into a significant long-term supply agreement with Nanjing Casela Technologies. Under this agreement, Casela committed to purchasing indium phosphide wafer substrates worth approximately 173 million Chinese renminbi from January 2024 through December 2027, providing AXT with a stable and substantial revenue stream for the coming years.

Simultaneously, the company benefits from a persistent global shortage of indium phosphide, exacerbated by stringent Chinese export controls that have reportedly led to rejection rates exceeding 80% for export applications from US and Japanese companies. As a leading US-listed producer of InP substrates, AXT stands to gain from the resulting supply chain scarcity premium. Additionally, growing demand for AI infrastructure and higher-speed optical transceivers in cloud applications continues to drive interest in AXT's specialized substrate materials.