Tower Semiconductor Ltd (TSEM) continues to see strong demand for its silicon photonics (SiPh) business, but the chipmaker’s stock is approaching valuation levels that limit near-term upside, Wedbush analysts believe.
Wedbush maintained a Neutral rating on TSEM with a 12-month price target of $125, slightly above the stock’s Tuesday close of $120.67. The firm cited the company’s market-leading position in SiPh manufacturing and persistent optical demand, but noted that the current valuation already reflects much of the anticipated growth.
“The positive fundamental story around SiPh…remains intact,” Wedbush analysts wrote. Analysts highlighted recent reports of indium phosphide (InP) shortages driven by networking requirements, which could further boost demand for TSEM’s SiPh solutions.
Wedbush said the company may be able to ramp SiPh revenues faster than previously modeled, and additional capacity expansions could support further growth, though current data is insufficient to quantify the upside.
At the same time, Wedbush said TSEM’s 25x multiple on 2027 earnings already embeds some growth expectations, making further near-term upside limited. “Adjusting growth assumptions and applying a more conservative multiple yields a price target roughly equivalent to TSEM’s current price,” they wrote.
The firm also flagged modest cost pressures across other business lines, including higher memory prices affecting consumer electronics, which make up roughly a quarter of TSEM’s sales. Wedbush noted that industrial and IoT markets showed no significant pickup during recent travels through Asia.
Wedbush concluded that while TSEM’s SiPh segment remains a bright spot, broader market dynamics and valuation levels warrant a cautious stance.