Shares of Tower Semiconductor (NASDAQ:TSEM) fell more than 6% in New York trading on Thursday, caught in a broader selloff across chip stocks, even as analysts pointed to new expansion plans that could drive longer-term upside.
Analysts at Wedbush Securities said Tower’s plans to expand cleanroom capacity for silicon photonics (SiPh) and silicon-germanium (SiGe) production suggest growing confidence that demand will exceed its existing optics-focused investments.
The company also unveiled a restructuring of its TPSCo joint venture with Nuvoton Technology. Under the agreement, Nuvoton will take full ownership of TPSCo, including the eight-inch Tonami fabrication plant, while Tower will receive the 12-inch Uozu facility along with a $25 million payment. The companies will maintain a supply agreement to support existing customer programs.
Tower is also seeking subsidies from Japan’s Ministry of Economy, Trade and Industry (METI) to support a significant expansion of the Uozu fab. Plans include acquiring adjacent land and building additional cleanroom space in a brownfield expansion aimed at quadrupling output, with new capacity dedicated to photonics-related production.
Wedbush estimates the added capacity, once fully ramped, could amount to more than 75% of Tower’s current wafer starts. Importantly, this expansion was not included in the company’s previously issued long-term model, implying potential upside to both revenue and earnings forecasts.
Analysts said the move indicates that management expects to fully utilize its existing SiPh and SiGe capacity, including approximately $500 million per quarter of silicon photonics capacity currently being added. They added that utilization could ramp faster than previously anticipated and ahead of consensus expectations.
While Wedbush maintained its rating and price target pending further visibility into 2026 performance and ramp timelines, it said the announcement signals increased confidence from management in both demand trends and execution.