In August, I called AXT $AXTI ( ▼ 9.51% ) one of the most overlooked AI infrastructure plays. Three months later, the business is moving even faster than I expected. The stock is not.

On October 29, AXT reported record revenue of $73.4 million, up 162% year over year and 54% from the prior quarter. Indium phosphide, the material behind the lasers in AI data center optics, brought in $54.3 million, four times what it did a year ago. Gross margin jumped to 56%, earnings of $0.41 per share beat the $0.31 consensus, and the backlog passed $500 million, up from just over $100 million a quarter earlier. Management guided Q4 revenue to about $90 million.

The market sold it anyway. AXTI closed at $48.20 on Monday, down about 21% in the two trading days after the report and about 66% below its May peak close of $140.83. That is also well below the $64.25 per share at which AXT sold $632 million of new stock in April. Investors are worried about export permits, about whether all this new capacity could one day outrun demand, and about the stock's enormous run. Those concerns are not unreasonable. But the numbers say demand is still running well ahead of supply. Let's take a deeper dive.