From $5 billion deal to $18 billion reality: Tower’s AI pivot pays off
Silicon photonics surge reshapes the fortunes of Israel’s chipmaker.
When the latest war with Iran began at the end of February, silicon photonics (SiPho) was still seen as just another promising technology tied to AI and data centers. But in the three weeks since, the narrative has shifted dramatically.
Two key developments in the United States helped trigger that shift, and are now driving a sharp surge in Tower Semiconductor’s stock. Over the past week alone, the shares jumped 31%, lifting the company’s valuation to roughly $18 billion. Just four years ago, Tower was close to being acquired by Intel for $5 billion.
The rally has unfolded against an extraordinary backdrop: missiles flying over Tower’s plant in Migdal HaEmek, launched from both Lebanon and Iran. Despite this, the company’s valuation now exceeds that of Check Point Software Technologies, placing it third among Israeli companies listed on Wall Street, behind Elbit Systems and Teva Pharmaceutical Industries.
On the Tel Aviv Stock Exchange, Tower is also climbing rapidly, approaching a market value of NIS 60 billion (about $19.2 billion) and potentially closing in on Mizrahi Tefahot Bank. Larger gaps remain ahead, with Bank Hapoalim trading near the NIS 100 billion ($32 billion) mark, but given that Tower’s shares have risen more than fourfold over the past year, such scenarios no longer seem far-fetched.
The timing is notable. Tower is marking 25 years since it began dual listing in Tel Aviv and on Wall Street. When it joined the Tel Aviv exchange in August 2001, its market capitalization stood at just NIS 550 million, meaning the stock has increased nearly 110-fold since then.
The immediate catalyst for the latest surge came from NVIDIA GTC in San Jose. There, Jensen Huang identified photonics as a core building block of future AI infrastructure, signaling a strategic shift toward replacing copper-based data transmission with light-based solutions.
Just days later, the Optical Fiber Communications Conference in Los Angeles, typically a low-profile industry gathering, took on new significance. At the event, U.S. photonics company Lumentum issued a striking forecast: from annual revenue of $2 billion today to a quarterly run rate at that level next year. The projection helped propel its valuation to around $50 billion, an 80% increase in less than three months, and added momentum to the broader rally in photonics-related stocks.
For Tower CEO Russell Ellwanger, who has led the company for 25 years, the moment reflects a long-term bet beginning to pay off. Tower, once seen as an overly ambitious and struggling venture, built its identity as a niche manufacturer of specialized chips. Now, that niche, silicon photonics, is emerging as a central pillar of AI infrastructure.
Until recently, photonics was considered a relatively narrow field, mainly used to connect data centers. But as data volumes within server farms grow exponentially and demand for speed intensifies, traditional copper infrastructure is reaching its limits. The industry is increasingly shifting toward photonics, which enables faster data transfer while consuming less energy, a critical constraint in scaling AI systems.
Tower has been investing heavily to position itself for this transition. The company committed $650 million to expand photonics manufacturing capacity, followed by an additional $270 million announced earlier this year, bringing total planned investment to nearly $1 billion. According to Ellwanger, roughly 70% of the new capacity is already booked or in advanced negotiations, supported by customer prepayments. Most expansion projects are expected to be completed by the end of 2026.
In recent weeks, Tower has also announced several strategic partnerships, including a collaboration with Nvidia, a move widely seen in the industry as a powerful endorsement.
Ellwanger had already hinted at this trajectory late last year. “There is a transition from previous platforms to photonics, which currently has an adoption rate of only 20-30% and is expected to reach 90-100%,” he told Calcalist in December 2025. “The target market for what we do today could triple.”
By February, Tower translated that outlook into financial projections. Under its new model, the company expects to double revenue by 2028 compared with 2025, reaching $2.8 billion, while net profit is projected to triple to $750 million. As early as 2026, nearly half of its revenue is expected to come from AI-related activity, roughly $1 billion.
The contrast with the failed Intel acquisition is striking. The $5 billion deal, blocked by Chinese regulators, once appeared to be a missed opportunity. In hindsight, it may have allowed Tower to remain independent just as its core technology moved to the center of the AI boom.
