IQE, the Cardiff-based specialist in compound semiconductor wafers, has laid out an ambitious growth target for 2026, betting that the insatiable demand from artificial intelligence data centres will drive revenue more than 20% higher. The forecast, announced alongside full-year results for 2025, paints a picture of a company emerging from a bruising period, pinning its hopes on the very technologies that are reshaping global computing infrastructure.
The results for 2025 underscored the scale of the challenge. Revenue dropped 18% to £97.3 million, down from £118.0 million the previous year. Adjusted EBITDA slumped 60% to £3.2 million, representing a margin of roughly 3%. Yet the company sees a clear path to recovery, anchored in the growing need for high-speed optical interconnects in AI data centres, and the strategic importance of Western supply chains for key semiconductor materials.
The photonics engine
The core of IQE's rebound strategy is indium phosphide, a compound semiconductor that serves as the substrate for optical transceivers. These transceivers are the critical components that wire together the massive clusters of GPUs and other accelerators used in AI training and inference. As AI models grow in size and complexity, the demand for these optical links is accelerating, pushing IQE into a pivotal role.
Photonics revenue, which spans data-centre networking and defence applications, rose 15% year-on-year to £57.1 million. Much of this strength came from the US, where faster releases of military and defence funding lifted orders through the year. The same optical components that shuttle data between servers also feed sensing and communications equipment for aerospace customers, a market IQE has leaned on while consumer demand wobbled.
The trend is structural rather than cyclical, tied directly to the scale of the AI clusters being built worldwide and the fibre optic links required to interconnect them. IQE is one of the few European manufacturers of these specialist materials, a position that has become increasingly valuable as governments on both sides of the Atlantic treat semiconductor supply as a matter of national security.
The wireless drag
Not all parts of IQE's business are firing. The wireless division, which supplies chips for smartphone sensors, experienced a dramatic 40% decline in revenue, falling to £40.1 million. This slump is largely attributable to persistent softness in handset demand, coupled with customers running down their inventories. US tariffs and a flat mobile market have exacerbated the situation.
This wireless weakness explains most of the shrinking top line for 2025. IQE’s pretax loss held roughly steady at £37.0 million, against £36.9 million a year earlier. However, the company managed to improve its operating cash flow to £8.1 million from £1.3 million, as capital spending was cut back significantly.
For 2026, the company guided to adjusted EBITDA in the high-single to low-double-digit millions of pounds. This deliberately wide range reflects the uncertainty surrounding how quickly photonics orders will convert into revenue, and whether the wireless division can stabilise or potentially recover.
Strategic positioning and supply chain challenges
IQE’s chief executive, Jutta Meier, described the company as “uniquely positioned as a critical enabler of the world’s fastest-growing technology ecosystems,” pointing to accelerating demand for its indium phosphide products. However, the raw materials themselves have become a pressure point. Shortages and Beijing’s export curbs on indium and gallium have pushed raw-material costs higher. Meier acknowledged that the firm is working with customers to “share the pain of that pricing” rather than passing on the full cost, a candid admission that the very shortages driving demand are also squeezing IQE’s margins.
The tightening of Chinese export controls has made IQE’s Western supply of compound semiconductors harder to replace, reinforcing the company’s strategic value. This geopolitical dimension has not been lost on investors, who have driven IQE’s share price up nearly 900% since January 2026, making it one of the best-performing stocks in London.
Financial firepower and investor confidence
To underpin its expansion, IQE completed an £81 million fundraise in April 2026. This included £45 million from US chipmaker Macom Technology Solutions, which took a position through £30 million of equity and £15 million of convertible notes, along with signing long-term supply agreements. The cash injection provides IQE with the balance sheet to add capacity as orders build, without having to lean on its lenders.
That is a significant turnaround from a year earlier, when the group had to secure a covenant waiver to stay onside with its bank. The fundraising also cements IQE’s place among the few European makers of these specialist materials, at a moment when the semiconductor supply chain is viewed as a strategic asset.
IQE’s wafers also sit inside the Face ID sensors on Apple’s iPhones, a testament to the breadth of its technology. The company serves both the high-volume consumer market and the specialised requirements of defence and aerospace.
Market reaction and outlook
The market’s response to the update was cautious. Shares eased roughly 5% on the day of the results, to around 48p. This pullback suggests that investors had already priced in much of the recovery story before the guidance was formally announced. The 20% growth target for 2026, while ambitious, still leaves IQE short of the revenue levels it reported before the downturn hit.
Whether that growth actually materialises depends on several factors. The wireless division needs to stabilise rather than sink further. Data-centre customers must hold to their order schedules, and the ramp-up of photonics orders must proceed as planned. Additionally, the company must navigate the ongoing volatility in raw material prices and the broader geopolitical tensions affecting global trade.
For now, the 20% growth number stands as a statement of confidence in the demand story driven by AI data centres. IQE’s ability to execute will determine whether it can convert that confidence into sustained profitability.