AXT Inc's stock surged 5.58% in pre-market trading, driven by developments that reinforce a tight supply narrative for indium phosphide (InP) substrates and a new long-term contract for the company.

According to recent reports, Chinese customs authorities have strengthened scrutiny of indium metal exports, a critical raw material for InP production. For the first time, European buyers are required to disclose end-user information, while approval times for North American buyers have extended from same-day to several days. Given that China supplies nearly 70% of the world's indium and holds the entire global capacity for purifying 7N high-purity indium, these measures exacerbate existing supply chain constraints. Export application rejection rates for U.S. and Japanese companies have reportedly exceeded 80%, contributing to a global InP capacity shortfall of over 70%.

As the leading U.S.-listed producer of InP substrates, AXT Inc is positioned to benefit from the resulting scarcity premiums. Additionally, the company's subsidiary, Beijing Tongmei, recently secured a long-term supply agreement with Nanjing Casela Technologies worth approximately RMB 173 million for InP wafer substrates to be delivered in 2027, providing visibility into future stable revenue.