Key Takeaways
- Tower Semiconductor fell 14% in the past week, mostly in a chip selloff after Intel’s weak forecast that also hit Lumentum and Coherent.
- Tower then posted record third-quarter revenue, up 33%, and guidance above estimates.
- Tower targets a $1.1 billion annualized run rate from silicon photonics in the fourth quarter, 5x its 2025 revenue from it.
- At 26x forward earnings, about its five-year average, the stock looks like a buy.
Tower Semiconductor (TSEM) fell 14% in the past week. Most of the drop came in a chip selloff that started with a weak forecast from Intel (INTC).
Intel did most of the damage
The worst day was Oct. 30, with no Tower news. The evening before, Intel forecast fourth-quarter revenue of $15.0-$16.0 billion, below expectations. Its CFO expects a PC slowdown through at least the first half of next year. Intel fell 35% over the week. Tower’s fellow optical-chip stocks Lumentum (LITE) and Coherent (COHR) dropped 22% and 12%.
Intel’s problem is PCs. Tower CEO Russell Ellwanger says Tower’s growth comes from data-center infrastructure.
A record quarter didn’t help
Before Monday’s open, Tower reported third-quarter revenue of $526 million, up 33%. Tower guided fourth-quarter revenue to $600 million, ahead of the $579.7 million consensus.
“We are entering the strongest growth phase in our history,” Ellwanger said in the release.
Analysts already expected Tower’s normalized EPS to nearly triple from 2025 to 2027:
With guidance above consensus, I see no reason for analysts to cut.
TIKR tracks 9 analysts on Tower Semiconductor. How many say “Buy”?
See the full breakdown of Buy, Hold, and Sell ratings on Tower Semiconductor, along with Wall Street’s revenue and earnings estimates, all in one place. More than 500,000 investors use TIKR to research stocks like this one. See Tower Semiconductor’s Analyst Ratings
Silicon photonics is the whole story
Ellwanger targets a $1.1 billion annualized run rate from silicon photonics alone in the fourth quarter. Customers are also extending their contracts through 2029.
Lumentum and Coherent are seeing the same demand. On Oct. 26, StoneX initiated coverage of both at Buy, saying their laser capacity is sold out into 2029. So three AI optics suppliers are booked years ahead, and all three sold off with Intel anyway.
Tower’s third-quarter capex of $191 million was slightly more than its $185 million of operating cash flow.
Is Tower a buy at half its June high?
At Monday’s close, Tower traded at 26x forward earnings. That’s right at its five-year average and far below the 84x it hit in June:
Frankly, an average multiple for growth this fast looks like a bargain, and I’d buy here.
Next up: fourth-quarter results early next year, where Tower has to hit $600 million and, as Ellwanger aims, start 2027 without the usual first-quarter dip.
So what is Tower Semiconductor stock actually worth?
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Disclaimer:
Please note that the articles on TIKR are not intended to serve as investment or financial advice from TIKR or our content team, nor are they recommendations to buy or sell any stocks. We create our content based on TIKR Terminal’s investment data and analysts’ estimates. Our analysis might not include recent company news or important updates. TIKR has no position in any of the stocks mentioned. Thank you for reading, and happy investing!
