IQE lifts growth forecast on AI data centre demand

TL;DR:

• UK semiconductor wafer maker IQE has raised its 2026 revenue growth forecast to above 30%, up from 20%, after first-half trading beat management expectations across all core businesses.
• First-half revenue is expected to be at least £64m ($86m), with core profit reaching the low-teens millions of pounds.
• Demand for Indium Phosphide solutions, used in optical photonic products for AI infrastructure, accelerated in the first half and is expected to hold through the year.

Most UK exposure to the AI infrastructure build-out arrives second-hand, through fund holdings in American firms. IQE is one of the few places where it shows up directly in a London-listed set of results, which makes a guidance upgrade of this size worth more attention than its market capitalisation would ordinarily attract.

Indium Phosphide is the specific driver. The compound semiconductor underpins the optical components that move data between and within data centres — the interconnect layer that becomes a bottleneck as clusters scale. Demand there is a function of build-out volume rather than of which model wins, which is a more durable position than supplying any single part of the stack.

The upgrade was not solely AI-driven. IQE also cited strength in aerospace and defence alongside robust demand for 3D sensing and wireless products, meaning the raise rests on more than one end market.

Reading it against the UK picture

The contrast with domestic adoption is stark. ONS figures published this week show UK businesses using an average of 1.6 AI technologies apiece, with only 10% of adopters describing their use as extensive. British firms are consuming AI thinly while a British supplier sells into the infrastructure boom at more than 30% growth — the value is accruing upstream, to the picks-and-shovels layer, rather than downstream in productivity gains across the wider economy.

That upstream demand is not without its own risks. Investors have recently been positioning for a slowdown in hyperscaler capital expenditure growth, and a supplier whose upgrade depends on data centre build rates carries that exposure directly.

Looking forward

Raising full-year guidance by ten percentage points mid-year is a substantial revision, and the company attributes it to demand that accelerated in the first half rather than to a one-off. The test is whether Indium Phosphide demand reflects a durable shift in data centre optics or a single procurement cycle pulled forward. Full first-half results will show whether the low-teens core profit figure converts into cash, and whether the aerospace and defence contribution holds alongside it.