IQE, the Cardiff-based maker of compound semiconductor wafers, expects revenue to grow by more than 20% in 2026, betting that surging AI data-centre demand for its light-carrying materials will pull it clear of a bruising year.

The upgrade landed on 21 July alongside full-year results that showed just how far the company has to climb. Revenue for 2025 fell 18% to £97.3m, down from £118.0m, while adjusted EBITDA dropped 60% to £3.2m, a margin of roughly 3%.

The rebound case rests on indium phosphide, the substrate behind the optical transceivers that wire AI clusters together, and on tightening Chinese export controls that have made IQE’s Western supply harder to replace.

The split inside the business was stark. Photonics revenue, which spans data-centre networking and defence work, rose 15% to £57.1m, while the wireless division that supplies chips for smartphone sensors slid 40% to £40.1m as handset demand stayed soft and customers ran down inventory.

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Much of the photonics 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 kit for aerospace customers, a market IQE has leaned on while consumer demand wobbled.

The pull is structural rather than a one-off, tied to the scale of the AI clusters going up around the world and the fibre links needed to keep them fed.

That wireless slump, tied partly to US tariffs and a flat mobile market, explains most of the shrinking top line. IQE’s pretax loss held roughly steady at £37.0m, against £36.9m a year earlier, though operating cash flow improved to £8.1m from £1.3m as capital spending was cut back.

For 2026, the company guided to adjusted EBITDA in the high-single to low-double-digit millions, a deliberately wide range that hangs on how quickly photonics orders convert.

Chief executive Jutta Meier said IQE was “uniquely positioned as a critical enabler of the world’s fastest-growing technology ecosystems,” pointing to “accelerating demand” for its indium phosphide products.

The materials have become a pressure point in their own right. Shortages and Beijing’s curbs on indium and gallium exports have pushed raw-material costs higher, and Meier said the firm was working with customers “to really ensure that we are sharing the pain of that pricing” rather than passing it on in full.

It is an unusually candid admission that the very shortages driving demand for IQE’s materials are also squeezing what it pays to make them.

The market took the update coolly. Shares eased roughly 5% on results day, to around 48p, trimming a rally that has made IQE one of the best-performing London stocks of 2026, up close to 900% since January. Investors, put another way, had already bought the recovery the guidance now sets out.

Underpinning the expansion is an £81m fundraise completed in April, including £45m from US chipmaker Macom Technology Solutions, which took a position through £30m of equity and £15m of convertible notes and signed long-term supply agreements.

The cash hands IQE, whose wafers also sit inside the Face ID sensors on Apple’s iPhones, the balance sheet to add capacity as orders build without leaning on its lenders.

That matters after a year in which the group had to secure a covenant waiver to stay onside with its bank.

It also cements the company’s place among the few European makers of these specialist materials, at a moment when governments on both sides of the Atlantic are treating semiconductor supply as a strategic concern. That positioning is part of why the shares have run so hard.

Whether 20% growth actually arrives depends on wireless steadying rather than sinking further, and on data-centre customers holding their orders to schedule.

For now the number reads as a statement of confidence in the demand story, not yet a return to the profits IQE booked before the slump.