China's Grip on Indium Phosphide Is Becoming a Real Problem for AI Chipmakers

China controls roughly 70% of the world's indium supply, and a material almost nobody outside the chip industry has heard of, indium phosphide, has no substitute in the optical chips that move data through AI data centers. Its price has already nearly tripled. You've probably never said the words "indium phosphide" out loud. IQE's chief executive Jutta Meier just told Bloomberg you should start paying attention anyway. In a report published September 7, she warned that Chinese export controls on the material are turning into a real supply-security crisis for the chip industry. There's no easy workaround. InP has no viable substitute in the high-speed optical chips that shuttle data through AI server racks and fiber-optic networks. China added indium phosphide to its export control list back in February 2025, forcing exporters to secure a government permit for every single overseas shipment. The country produces roughly 70% of the world's indium. So when Beijing tightens the tap, everyone downstream feels it. Average prices for six-inch InP wafers have climbed about 250% since the controls took hold, according to Bloomberg, and now run near $5,000 a wafer. That's not a rounding error. That's a supply chain rewriting its own economics, in real time. The Squeeze On Lasers Meier isn't the only executive sounding the alarm. Lumentum's chief executive, Michael Hurlston, has told investors that the supply-demand gap for InP lasers now exceeds 30%, and that it's worse than the shortage that hit memory chips. Telecom customers used to order these lasers in the hundreds. Nvidia and the big cloud companies are now asking for hundreds of millions. Nvidia has already written roughly $2 billion in checks to Lumentum and Coherent, the two companies that make most of the world's high-speed datacom lasers, to lock in future capacity. Indium phosphide isn't used to build the AI accelerators themselves. It's used to build the optical transceivers that move data between them, the components that turn electrical signals into light and back again so information can travel fast enough to keep pace with a data center full of GPUs. No silicon substitute does that job at the speeds AI clusters now demand. That's exactly why a shortage of a little-known compound semiconductor can bottleneck a trillion-dollar industry. New capacity doesn't come quickly, either. Growing InP crystal and qualifying it with customers takes years, not months, so nobody is building their way out of this by next quarter. It isn't only companies scrambling. The US and Japan are racing to secure chip-grade mineral supplies of their own, according to Asia Times, treating indium the way they've started treating rare earths: as a strategic vulnerability rather than a line item on a purchase order. Frankly, that's the real shift here. A material that spent decades as a footnote in materials-science textbooks now sits on national security agendas. Cashing In On Scarcity IQE's own numbers show what scarcity does for a supplier that can meet it. The Cardiff, Wales based wafer maker posted revenue of £64.6 million for the first half of 2026, up 43% from £45.3 million a year earlier, and it's now guiding for full-year revenue growth above 30%. The company is debt-free, sitting on £41.6 million in cash, and says it's converting existing manufacturing lines to ramp up InP output in the second half of the year while locking in longer-term supply agreements for raw material. AXT, a US-based compound semiconductor supplier, told the Needham Growth Conference it's seeing the same surge in InP demand tied to AI data centers. Scarcity is good business. Just ask whoever's holding the scarce thing. For now, the bottleneck sits with Beijing's export permit office as much as with any fab. IQE says it's converting capacity through the rest of 2026. Whether that's fast enough for Nvidia's roadmap is a question nobody in this supply chain can answer yet. Also read: Japan's Preferred Networks Courts Foreign Money to Fund Its Own AI Chips • Deutsche Telekom, Orange, Vodafone and Telefonica Weigh a Joint Satellite Bid • HDFC Bank and ICICI Bank Buy India's First Tokenized Bond From REC