Is This The Best European Photonics Play? Is It Actually Important? Or Has Nothing Changed?

Gaetano · Gaetano · July 22, 2026 at 22:01 · ⏱ 4 min read  | Read on Substack ↗
Summary
The author, Gaetano, revisits IQE, a European photonics epitaxy company, acknowledging prior concerns (declining revenue, underutilized footprint, execution issues) but now sees opportunity due to severe indium-phosphide (InP) supply constraints on both substrates and internal manufacturing capacity. He does not yet own IQE but is stress-testing his thesis, implying that tighter InP supply chains could benefit IQE and other players in the laser chip ecosystem.
  • •IQE's revenue declined from £167.5 million in 2022 to £97.3 million in 2025.
  • •Indium-phosphide (InP) supply is constrained on two fronts: substrate availability (gated by China via AXT) and internal manufacturing capacity (MOCVD machines, lithography, etching tools).
  • •Laser chip makers Lumentum, Coherent, and AOI are aggressively expanding capacity to meet customer demand.
  • •IQE performs epitaxy on substrates and delivers finished laser chips; its location may offer a supply chain advantage.
  • •Author's initial concerns about IQE included large underutilized manufacturing footprint, weak operating leverage, chronic execution problems, and a hard-to-model business.
  • •The author is in 'stress-testing mode' on companies he does not own and is willing to change his opinion based on new information.
Read time 4 min
Length 4,779 chars
Category finance
Ideas
Gaetano Substack author, Gaetano
The author revisits IQE as the core subject, highlighting that InP supply constraints (substrates and internal manufacturing capacity) create a potential tailwind for IQE's epitaxy services. Author is
The author revisits IQE as the core subject, highlighting that InP supply constraints (substrates and internal manufacturing capacity) create a potential tailwind for IQE's epitaxy services. Author is 'coming around' and stress-testing the thesis, suggesting increasing institutional interest. Risk: IQE still faces execution problems, declining revenue, and underutilized capacity; no position is disclosed so conviction is uncertain.
IQE
Gaetano Substack author, Gaetano
Article states 'a good portion of the supply is gated by China via AXT' referring to InP substrate availability. AXT is a key supplier of substrates, so tight supply could lead to pricing power and hi
Article states 'a good portion of the supply is gated by China via AXT' referring to InP substrate availability. AXT is a key supplier of substrates, so tight supply could lead to pricing power and higher revenues for the company. Risk: Geopolitical risk: reliance on China-based supply chain; export controls could disrupt or benefit depending on policy.
AXTI
Gaetano Substack author, Gaetano
Article mentions Lumentum as one of the laser chip makers 'aggressively expanding capacity' due to customer demand exceeding internal manufacturing capability. This suggests strong end-market demand a
Article mentions Lumentum as one of the laser chip makers 'aggressively expanding capacity' due to customer demand exceeding internal manufacturing capability. This suggests strong end-market demand and potential revenue growth for Lumentum. Risk: Capacity expansion requires significant capex; execution risk and potential oversupply if demand softens.
LITE
Gaetano Substack author, Gaetano
Coherent is named alongside Lumentum and AOI as a laser chip maker facing InP manufacturing constraints and expanding capacity. Tight supply chains and strong demand support a positive outlook for Coh
Coherent is named alongside Lumentum and AOI as a laser chip maker facing InP manufacturing constraints and expanding capacity. Tight supply chains and strong demand support a positive outlook for Coherent's photonics business. Risk: Coherent also exposed to broader telecom/datacom cyclicality and integration risks from past acquisitions.
COHR
Gaetano Substack author, Gaetano
Applied Optoelectronics (AOI) is listed as a laser chip maker aggressively expanding capacity to meet demand for InP-based chips. Direct beneficiary of the supply-demand imbalance described in the art
Applied Optoelectronics (AOI) is listed as a laser chip maker aggressively expanding capacity to meet demand for InP-based chips. Direct beneficiary of the supply-demand imbalance described in the article. Risk: Smaller player with concentrated customer base; capacity expansion may strain financials.
AAOI
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This newsletter, published July 22, 2026, features Gaetano discussing IQE, AXTI, LITE, COHR, AAOI. 5 trade ideas extracted by AI with direction and confidence scoring.

Speakers: Gaetano  · Tickers: IQE, AXTI, LITE, COHR, AAOI