AXTI Stock Vastly Undervalued Amid Semiconductor Sector 'Anomaly', Analyst Asserts

Needham analyst Charles Shi reiterated a Buy rating on the shares of AXT Inc AXTI, lowering the price target to $5 from $8.

The analyst cautions about weakening industry fundamentals as inventory correction is expected to take longer than expected. 

The company reported the first significant Q/Q decline of the InP business segment in 1Q23 due to data center and smartphone-related inventory corrections.

The analyst models AXTI's revenue to bump along the ~$20 million/qtr run rate through 2023 and recover in 2024. The current rate is "the bottom-level run rate" for AXTI since 2010. 

Overall, the analyst believes the stock is vastly undervalued, trading at 0.6x its book value, which is an "anomaly" in the semiconductors sector. The analyst thinks that the valuation floor should be 1x the book value.

Due to its strong position in a relatively consolidated GaAs and InP substrate market, the analyst expects AXTI to benefit from the long-term tailwinds. 

Price Action: AXTI shares are trading lower by 1.25% to $3.55 on the last check Friday.