AI Computing Power Demand Boosts Gallium Arsenide: How US Stock Investors Can Position in the Related Industry Chain?

Gallium arsenide (GaAs) is a compound semiconductor material composed of gallium (Ga) and arsenic (As). Compared to silicon, it offers two significant advantages: exceptionally high electron mobility—roughly five to six times that of silicon—which is suitable for ultra-high-speed communications, and a direct bandgap, which results in high light-emitting efficiency.

These characteristics make it an ideal material for optoelectronics (including VCSEL lasers and LEDs in data center optical modules) and the radio frequency (RF) sector (including power amplifiers for 5G smartphones). Against the backdrop of exploding demand for AI computing power, it serves as one of the core foundational materials at the furthest upstream end of the optical communications industry chain.

The primary raw material for gallium arsenide is gallium, which is almost entirely derived as a by-product of aluminum refining and cannot be scaled independently. Since China implemented export controls on gallium in 2023, overseas prices have continued to climb.

[Source: Trading Economics]

According to Trading Economics data, as of May 8, 2026, the domestic price of gallium in China was CNY 2,050-2,100/kg.

Meanwhile, the international benchmark price for low-purity gallium in Rotterdam has nearly tripled over the past two years. Market data shows that in early March 2026, international gallium prices reached approximately $2,100/kg, a 123% increase compared to early 2025.

Gallium arsenide is a critical material for VCSELs, the central light source for data center optical modules. As AI servers advance toward 800G and 1.6T, demand for optical modules is experiencing multi-fold growth. According to Win Semiconductors' financial reports, although the company's capacity utilization remains at 60%, the gallium arsenide market is already in a state of tight balance due to strong demand from downstream customers for advance stocking and price-locking through long-term agreements.

For U.S. equity investors, the investment pathways into the Gallium Arsenide (GaAs) supply chain are primarily categorized into two types. The most direct play is AXT ( AXTI ), a substrate supplier with production facilities in Beijing. Benefiting from low-cost Chinese gallium raw materials and product price hikes, its latest quarterly gross margin has expanded from 21.5% to 29.9%.

For investors looking to gain exposure to the epitaxial segment, UK-based leader IQE (whose U.S. ADR trades on the OTC Pink market, while its primary listing is on the London Stock Exchange's AIM market) warrants attention, though OTC market disclosure is limited and liquidity is poor.

In the IDM sector, Skyworks ( SWKS ), Qorvo ( QRVO) and MACOM ( MTSI) and other RF and optical communications firms are also involved in the GaAs business, but due to their diversified operations, the investment logic for benefiting from this trend is not as pure as that of upstream material suppliers.

The GaAs supply chain comprises three segments: substrates, epitaxy, and foundries. Financial data indicates that foundries benefit most directly, with Win Semiconductors—the world’s largest foundry—reporting quarter-on-quarter gross margin improvement in the first quarter. Epitaxy specialist LandMark Optoelectronics has moved forward with capacity expansion, with new equipment slated to come online in the second half of 2027. In the substrate segment, AXT’s first-quarter revenue rose 38% year-over-year to $26.9 million, as its gross margin climbed from 21.5% to 29.9%.

Foundries and epitaxy providers benefit from higher technical barriers and strong customer stickiness, granting them robust pricing power during capacity shortages. The substrate segment faces more intense competition, and the frictional costs associated with passing on price hikes are also higher.

On the demand side, NVIDIA ( NVDA) and Lumentum ( LITE ), Coherent ( COHR) have signed multi-billion dollar long-term supply agreements. On the supply side, gallium is constrained by global aluminum production, and high-end epitaxial capacity expansion requires 18 to 24 months.

Considering both supply and demand factors, the tight supply-demand situation is unlikely to ease significantly over the next 12 to 18 months. However, the following risks could shift this logic: China easing export controls on gallium, AI capital expenditure falling short of expectations, capacity expansion exceeding expectations, or silicon photonics technology maturing to replace VCSELs.

The current rise in gallium arsenide prices is not simply due to increased costs, but rather a redistribution of profits caused by AI computing power investment transmitting upstream. Based on disclosed data, substrate manufacturer AXT saw a very significant gross margin improvement of 8.4 percentage points, while foundries and epitaxial plants are also benefiting from capacity utilization and expansion expectations.

For U.S. stock investors, IQE and AXT are directly related targets, though their respective benefit logic and risk exposures must be distinguished. In the short term, the tight supply-demand situation remains unchanged, and the upward price trend is expected to continue. The sustainability of the subsequent rally depends on whether the quarterly gross margins of the relevant companies can continue to improve.

This content was translated using AI and reviewed for clarity. It is for informational purposes only.