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Tower Can Sell As Much Silicon Photonics Product as it Can Produce
Tower (NASDAQ:TSEM) continued year-over-year and sequential revenue growth in its just-reported Q3 2025 (growing 7%), but what has investors excited is that they now see Tower as a play on data centers for AI. The company produces Silicon Photonics products used in optical transceivers, which transmit data in data centers at light speed. This technology is being produced for 400G, 800G, and increasingly 1.6T speeds as data centers seek to reduce costs and power consumption while increasing throughput. While still a small part of overall revenues, Silicon Photonics (SiPh) is ramping quickly as new capacity comes onstream. This product line currently has excess demand, and sales are gated only by Tower’s ability to produce. To increase capacity, yesterday Tower pledged to spend an additional $300 million to speed up capacity expansion and next-generation capabilities in its Fab 3, Fab 9, Fab 2, and Fab 7. This investment is targeted to achieve full volume in wafer starts in the second half of 2026. The resultant capacity should increase its SiPh shipment by over 3X against its targeted Q4 2025 qualified utilized capacity. SiPh contributed $105 million in revenues in 2024, and management now expects it to more than double in 2025. By the end of 2026, it expects to have tripled its capacity for SiPh, which will result in higher revenues primarily in 2027.
For Q4, Tower guided to revenues of $440 million plus or minus 5%, which results in accelerating year-over-year growth. Despite much discussion, the company has seen no effect on business due to current or pending US or reciprocal tariffs. Very little, if any, of Tower’s revenues comes from products shipped into the US; most are shipped elsewhere in Asia for final assembly into end-user devices. In the meantime, Tower is increasing capacity in its US fabs.
As of last night’s closing, price, the company trades at an enterprise value of $9.9 billion, or 5.7 EV to estimated sales for 2026. Since its low at $28.54 on April 4, 2025, the stock has rocketed 244%.
Q3 2025 Results
The biggest revenue contribution in the quarter came from RF infrastructure, surpassing RF Mobile. In Q3, RF Infrastructure grew 60% to $107 million and is expected to show growth of 75% for the year. SiPh was $52 million of that and grew 70% over last year. While these are big growth rates, the dollar amount is still small compared to overall revenues. As they become a bigger portion of total revenues, growth should accelerate.
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