Tower Semiconductor surges on $1.3 billion silicon photonics contracts, pushing valuation over $25B
The Israeli chipmaker locks in multi-year demand from major customers as AI data infrastructure drives record visibility.
Tower Semiconductor is riding a surge in demand tied to artificial intelligence infrastructure, announcing $1.3 billion in contracted silicon photonics revenue for 2027 and $290 million in customer prepayments to reserve manufacturing capacity.
The announcement sent the company’s shares sharply higher, pushing them to a new all-time high and lifting its market valuation over $25 billion.
The contracts, signed with Tower’s largest customers, mark one of the clearest signals yet of how AI-driven data center expansion is reshaping demand for advanced optical connectivity technologies. Tower said the commitments reflect “multi-year customer confidence” in its silicon photonics roadmap and its ability to scale production across multiple fabs globally.
The 2027 agreements are only part of a broader demand pipeline. Tower said that even larger wafer commitments are expected for 2028, with additional prepayments due by early 2027. The company also noted that total customer demand exceeds the contracted $1.3 billion figure, supported by more than 50 active silicon photonics customers across a wide range of applications.
To meet this demand, Tower is expanding its global manufacturing footprint and scaling its silicon photonics capacity, which the company describes as central to achieving its long-term financial model of $2.8 billion in revenue and $750 million in net profit by 2028.
“These long-term agreements further strengthen Tower’s strategic position at the center of the rapidly expanding optical connectivity market,” said CEO Russell Ellwanger. He said the company is positioned to serve both current high-volume optical transceivers and next-generation architectures such as Near-Packaged Optics and Co-Packaged Optics, which are emerging as key technologies for scaling AI infrastructure.
The company highlighted that silicon photonics is increasingly critical for improving bandwidth, power efficiency and connectivity performance in large-scale AI systems. It is also investing in technologies aimed at next-generation AI hardware architectures, including optical circuit switches for low-latency networks and hybrid integration techniques for advanced chip packaging.
In its earnings update, Tower reported first-quarter 2026 revenue of $414 million, up 15% year over year, alongside growth in gross and operating profit of 52% and 96%, respectively. Net profit rose to $65 million.
For the second quarter, the company guided revenue to a record $455 million, plus or minus 5%, representing 22% year-over-year growth and 10% sequential growth. It said it expects continued quarter-on-quarter revenue and margin expansion throughout 2026.
Ellwanger said the company’s performance reflects “strong customer demand, expanding content opportunities and the increasing contribution” of its silicon photonics business, particularly in AI infrastructure markets.
