--- title: "Next silicon? AI data centre material faces price spike amid China supply crunch" type: "News" locale: "en" url: "https://longbridge.com/en/news/296133772.md" description: "AI-driven demand for optical modules is causing a sharp price spike in Indium Phosphide (InP) substrates, with Chinese prices surging significantly. Supply chain complexities arise from US import bans and Chinese export controls, prompting companies like AXT to face permit hurdles. Major clients such as Coherent and Lumentum are securing supplies through prepayments and long-term agreements. Meanwhile, Japanese suppliers JX Advanced Metals and Sumitomo Electric are aggressively expanding production capacity to meet soaring demand." datetime: "2026-08-17T17:33:35.000Z" locales: - [zh-CN](https://longbridge.com/zh-CN/news/296133772.md) - [en](https://longbridge.com/en/news/296133772.md) - [zh-HK](https://longbridge.com/zh-HK/news/296133772.md) generator: "portal-rs" --- # Next silicon? AI data centre material faces price spike amid China supply crunch The artificial intelligence boom is driving demand for optical modules that enable ultra-fast data transmission in data centres, with the latest beneficiary a chemical compound that is seeing an unprecedented surge in prices. Indium phosphide (InP) is used to make lasers that convert electrical signals into light, allowing data to travel rapidly through fibre-optic cables. As a major producer of the material, China has seen prices climb sharply. According to a recent report by financial services firm Nomura citing industry experts, two-inch InP substrates surged to as much as 880 yuan (US$130.54) per wafer in June from as little as 500 yuan at the end of 2025. Over the same period, three-inch wafers rose to about 3,200 yuan from about 1,800 yuan. An InP index compiled by financial information provider Wind, which tracks stock prices across more than 20 firms listed in mainland China, gained 4.2 per cent on Monday, steeper than some high-profile technology segments including lithography and semiconductor materials. The industry was also mulling further price hikes that could reach 10 per cent in the fourth quarter of the year, according to a Monday report by Taiwan newspaper Economic Daily News. Other Asian suppliers have followed suit. JX Advanced Metals, one of Japan’s leading InP substrate producers, was introducing a first round of revisions that could raise prices to two to three times previous levels, according to a report by JPMorgan earlier this month. The investment bank said customer inquiries continued to exceed the company’s planned production capacity expansion. As AI clusters grow larger and require faster connections between processors and servers, demand for optical transmission has soared. But a looming ban by the United States, together with Chinese export controls, threatens to complicate supply chains. Reuters reported earlier this month that Washington was drafting measures through the Federal Communications Commission to bar new models of Chinese optical transceivers from the US market. The scale of the ban remains unclear, particularly whether it would target products from Chinese companies or factories physically located in the country. The latter could deal a major blow to American suppliers. California-headquartered AXT, for instance, has all its InP substrates manufactured in China. Beijing, meanwhile, placed InP under export controls in February 2025, requiring shippers to obtain licences from the Ministry of Commerce. AXT’s Chinese subsidiary has faced hurdles, only receiving its first export permits in June 2025 and being granted fewer licences than expected in the fourth quarter, the company said. “InP export permits represent the most significant challenge we currently face,” AXT said in a regulatory filing in May. Meanwhile, its major clients, Lumentum and Coherent, have moved to secure supplies. In June, Coherent agreed to prepay AXT US$22.3 million to support an expansion of six-inch InP substrate capacity at the supplier’s Beijing facility between 2026 and 2028. A month later, Lumentum struck an agreement reserving InP capacity through the end of 2031, with two deposits totalling US$87 million. Other suppliers are also responding with unusually aggressive expansion plans. Japan’s JX announced in June that it would spend up to 120 billion yen (US$752 million) over four years on InP substrates – its largest investment in the product to date – with plans to scale production capacity to seven to 10 times its fiscal 2025 level. Customer demand was rising significantly beyond previous expectations, the company said. Sumitomo Electric, another major Japanese supplier, is also expanding InP substrate production to feed growing AI data centre demand. Meanwhile, Morgan Stanley said this month that substrate availability was beginning to improve as producers added capacity and Beijing issued more regular export permits. The main bottleneck could gradually shift from securing substrates to manufacturers' ability to turn wafers into finished laser devices, the bank said. ### Related Stocks - [AXTI.US](https://longbridge.com/en/quote/AXTI.US.md) - [LITE.US](https://longbridge.com/en/quote/LITE.US.md) - [5802.JP](https://longbridge.com/en/quote/5802.JP.md) - [COHR.US](https://longbridge.com/en/quote/COHR.US.md) - [AXTU.US](https://longbridge.com/en/quote/AXTU.US.md) - [AXTX.US](https://longbridge.com/en/quote/AXTX.US.md) - [LITU.US](https://longbridge.com/en/quote/LITU.US.md) - [LITX.US](https://longbridge.com/en/quote/LITX.US.md) - [LITZ.US](https://longbridge.com/en/quote/LITZ.US.md) - [COHX.US](https://longbridge.com/en/quote/COHX.US.md) - [NMR.US](https://longbridge.com/en/quote/NMR.US.md) - [8604.JP](https://longbridge.com/en/quote/8604.JP.md) - [JPM.US](https://longbridge.com/en/quote/JPM.US.md) - [MS.US](https://longbridge.com/en/quote/MS.US.md) - [JPM-M.US](https://longbridge.com/en/quote/JPM-M.US.md) - [JPM-C.US](https://longbridge.com/en/quote/JPM-C.US.md) - [JPM-D.US](https://longbridge.com/en/quote/JPM-D.US.md) - [JPM-L.US](https://longbridge.com/en/quote/JPM-L.US.md) - [8634.JP](https://longbridge.com/en/quote/8634.JP.md) - [JPM-K.US](https://longbridge.com/en/quote/JPM-K.US.md) - [JPM-J.US](https://longbridge.com/en/quote/JPM-J.US.md) - [MS-O.US](https://longbridge.com/en/quote/MS-O.US.md) - [MS-Q.US](https://longbridge.com/en/quote/MS-Q.US.md) - [MS-E.US](https://longbridge.com/en/quote/MS-E.US.md) - [MS-I.US](https://longbridge.com/en/quote/MS-I.US.md) - [MS-L.US](https://longbridge.com/en/quote/MS-L.US.md) - [MS-P.US](https://longbridge.com/en/quote/MS-P.US.md) - [MS-A.US](https://longbridge.com/en/quote/MS-A.US.md) - [MS-F.US](https://longbridge.com/en/quote/MS-F.US.md) - [MS-K.US](https://longbridge.com/en/quote/MS-K.US.md) ## Related News & Research - [AXT director Leonard J. 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