By Lisa Thompson
NASDAQ: TSEM
READ THE FULL TSEM RESEARCH REPORT
Tower reported another record quarter, beating on revenues and earnings and guiding higher than street estimates for Q4, where they have good visibility. This was driven by 176% growth in RF Infrastructure sales, of which 83% was from SiPho. For Q4 2026, Tower guided to revenues of $600 million plus or minus 5%, another company record. Furthermore, it believes that Q1 2027 will be up sequentially rather than the typical seasonality it has experienced in the past when revenues dropped from Q4 levels. This could result in accelerating year-over-year growth and even higher margins.
Its income statement is revealing the inherent operating leverage of a foundry. Revenues for the quarter at $526 million were up 33%, gross margin was up 92%, and operating income rose 151%. Based on guidance, Q4 should be up at least 36%, an accelerating number.
In its July announcement of Japanese expansion, Tower targeted a $3.6 billion revenue run rate sometime in 2028 and $1.2 billion of net profit, which would result in approximate EPS of $10.25. Since right now the company can sell as much as it can produce of photonics products, it is doing all it can to increase capacity and said it was ahead of schedule on its Track 1 plans.
We are raising our 2026 estimates to reflect sales and earnings beat and the guidance. The revenue estimate for 2026 is now $2.0 billion, and for 2027 is $2.7 billion. Estimates for adjusted EPS have been increased to $4.05 for this year and $6.60 for 2027. As of last night’s closing price, the company trades at an enterprise value of $17.4 billion, or 6.4x EV to estimated 2027 sales. As a photonics/AI data center play, we see catalysts in: potential increased guidance and continued beat and raises, increased target model, and announcements of new large customers. Right now, the only gating factor is capacity, and the revenue risk is in future pricing. If investors assume $3.6 billion in revenues, with an 8.1x EV to Sales, and $500 million of the cash spent, the stock price would be $266 per share. Since its low of $28.54 on April 4, 2025, the stock is up 483%.
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