Tower Semiconductor Ltd. (TSEM) shares jumped 15% Wednesday after the Israel-based chip foundry delivered a strong first-quarter earnings beat and issued upbeat guidance for the current quarter. The company is riding a wave of AI-driven demand, particularly in silicon photonics, which is reshaping how data centers and optical networks operate.
First-quarter revenue came in at $413.63 million, up 15% from a year ago and slightly ahead of the $410.98 million analysts were expecting. Adjusted earnings of 65 cents per share easily topped the 56-cent consensus estimate. But the real story is in the margins: gross profit surged 52% to $110.95 million, pushing gross margin to 26.8% from 20.4% a year earlier. Operating profit nearly doubled, rising 96% to $64.57 million.
Cash flow also looked impressive. Operating cash flow jumped to $509.97 million from $93.92 million in the prior-year quarter, and the company ended March with $243.31 million in cash.
Silicon Photonics: The Big Bet
Tower's long-term strategy hinges on silicon photonics, a technology that uses light instead of electrical signals to move data faster and more efficiently. The company announced it signed agreements with its largest customers that are expected to generate $1.3 billion in revenue in 2027 alone. Customers have already made $290 million in advance payments to reserve capacity, and they've committed to an even larger wafer supply agreement for 2028, with more prepayments expected by January 2027.
CEO Russell Ellwanger said demand is accelerating, with more than 50 silicon photonics customers expanding applications in AI, data centers, and optical connectivity. "These long-term agreements strengthen our position in the optical connectivity market, which is benefiting from growing AI infrastructure demand," Ellwanger said.
The company is expanding manufacturing capacity globally, targeting $2.8 billion in annual revenue and $750 million in net profit by 2028. Ellwanger noted that silicon photonics capacity is expected to increase fivefold from fourth-quarter 2025 levels by the end of 2026, as Tower invests in AI connectivity, optical networking, and advanced packaging.
Partners and Production
Tower is working with a roster of partners to scale its silicon photonics production, including Coherent Corp. (COHR), OpenLight, Lightwave Logic Inc. (LWLG), NLM Photonics, Salience Labs, Oriole Networks, and Scintil Photonics. Manufacturing is spread across facilities in the U.S., Israel, and Japan.
What's Next
For the second quarter, Tower forecast revenue between $432.25 million and $477.75 million, compared with the analyst estimate of $436.38 million. That's a wide range, but the midpoint suggests continued growth.
Shares of Tower Semiconductor were trading at $254.90 at publication time, up 15.43% and hitting a new 52-week high. The market is clearly betting that Tower's AI and silicon photonics story has legs.
