Tower Semiconductor’s AI boom drives record profits after 42% stock retreat
Revenue rose 33% in the third quarter to $526 million, and the company expects another record in the final quarter. Its silicon photonics business is emerging as a major growth engine amid surging demand from AI data centers.
Another strong quarter for chipmaker Tower Semiconductor, which reported a 33% increase in third-quarter revenue to $526 million. The company expects growth to accelerate further in the final quarter of the year, with revenue projected to reach $600 million. That would put Tower on track to generate approximately $2 billion in revenue for the full year.
The strong operating performance comes after a dramatic reversal in the company's share price. Tower's stock surged approximately 170% from the beginning of the year through June, when it reached a peak. Since then, however, it has lost around 42% of its value through the end of last week. Shares fell another 11.4% on Friday, leaving the Migdal Ha'emek-based chipmaker with a market capitalization of approximately $18.9 billion, about $14 billion below its June peak. Following the earnings release, the stock was up approximately 8% in premarket trading.
Silicon photonics, one of Tower’s newest and fastest-growing businesses, is expected to contribute slightly more than half of its projected $2 billion in annual revenue, or approximately $1.1 billion. The technology is aimed at the AI data center market, where rising data transmission demands are driving a shift away from traditional copper-based connections toward more advanced optical solutions.
Tower also reported a significant improvement in profitability. Gross profit nearly doubled during the quarter to $179 million, while operating profit reached $127 million, two and a half times the level recorded in the third quarter of 2025. Net profit hit a record $120 million, or $1.06 per share, giving the chipmaker a net profit margin of 23%. Cash flow from operations totaled $185 million.
“We are entering the strongest growth phase in our history, according to fourth quarter guidance, closing the year at $2 billion annual revenue and a $2.4 billion annualized revenue run rate. We target to begin 2027 avoiding first quarter's typical industry seasonality, with clear visibility to incremental sequential revenues with accompanying margins' growth,” said CEO Russell Ellwanger.
Ellwanger further added: “With a background of growth and strong increasing demand in each of our core businesses, infrastructure (SiPho and SiGe) demand specifically is driving exceptional growth in our high-speed connectivity business. We target to achieve an annualized $1.1 billion run rate in the fourth quarter of 2026 of SiPho revenue alone, namely 5X of the 2025 SiPho annual revenue. Our on-going capacity investments, including the announced Track-1 Japan 300mm buildout, are progressing ahead of schedule, supported by customer contracts which are being extended through 2029, providing great assurance to achieve our 2028 revenue and margins model, and a well-defined path for accretive margins thereafter.”
