By Lisa Thompson
NASDAQ:TSEM
READ THE FULL TSEM RESEARCH REPORT
As demand exceeds capacity, Tower Semiconductor (NASDAQ:TSEM) has decided to accelerate its investment as it sees margins continue to expand from the sale of new products. It is adding another $270 in capex to the next two years of spending to expand capacity for RF infrastructure products as demand outstrips supply. While the company is limited as to how high it can raise prices, it is deemphasizing lower margin products as it ramps new high margin ones. High margin SiPh contributed $228 million in 2025, up from $106 million in revenues in 2024, and with this additional investment, the company plans to grow capacity to greater than 5x of the actual Q4 monthly silicon photonics wafer shipments, compared to the 3x target given during the Q3 call. Over 70% of the total SiPho capacity is either presently reserved or in the process of being reserved through 2028, backed with customer prepayment.
For Q1 2026, Tower guided to revenues of $412 million plus or minus 5%, which results in slightly accelerating year-over-year growth.
As of last night’s closing price, the company trades at an enterprise value of $14.3 billion, or 6.3 EV to estimated sales for 2027. Since its low at $28.54 on April 4, 2025, the stock has rocketed 379%. TSEM trades at an enterprise value of $14.3 billion, or 6.5 EV to estimated sales for 2027, higher than its peers, who trade at an average of 5.7x. However, if we look at the components of that average, we see they diverge, with SMIC and Taiwan Semiconductor averaging 8.4x, while slower-growing Global Foundries and United Microelectronics are at or under 3.0x. At 8.4xs, TSEM stock would be worth approximately $175 per share using 2027 revenues. To be conservative, we are raising our price target to $150 as TSEM works to reach those revenue numbers.
Q4 2025 Results
The biggest revenue contribution in the quarter again came from RF infrastructure, surpassing RF Mobile. In Q4, RF Infrastructure grew 102% to $141 million, up from $107 million in Q3 2025, and showed growth of 81.3% for the year. SiPh was $95 million of that (including some NREs) for the quarter and grew 70%. For the year, SiPh contributed $228 million compared to $106 million the year before. The growth rates are accelerating as well as the percent contribution to total sales. As they become a bigger portion of total revenues, growth should continue to accelerate.
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