As conflict in the region escalated at the end of February, silicon photonics (SiPho) was initially perceived as merely another promising technology linked to artificial intelligence (AI) and data centres. However, the narrative has undergone a significant transformation in the subsequent weeks.
Two pivotal developments in the United States have initiated this shift, leading to a remarkable increase in Tower Semiconductor’s stock. Over the past week, the shares surged by 31%, elevating the company’s market valuation to approximately $18 billion. This is a stark contrast to just four years ago when Tower was on the verge of being acquired by Intel for $5 billion.
The stock rally has occurred amidst a backdrop of conflict, with missiles being launched over Tower’s facility in Migdal HaEmek from both Lebanon and Iran. Despite these challenges, the company’s valuation now surpasses that of Check Point Software Technologies, positioning it third among Israeli firms listed on Wall Street, trailing only Elbit Systems and Teva Pharmaceutical Industries.
In the Tel Aviv Stock Exchange, Tower’s stock is also experiencing rapid growth, nearing a market value of NIS 60 billion (approximately $19.2 billion) and potentially approaching Mizrahi Tefahot Bank. While larger gaps remain, with Bank Hapoalim trading around NIS 100 billion ($32 billion), Tower’s shares have quadrupled in value over the past year, making previously implausible scenarios seem attainable.
Significantly, Tower is commemorating its 25th anniversary of dual listing on both the Tel Aviv and Wall Street exchanges. When it first joined the Tel Aviv exchange in August 2001, its market capitalisation was merely NIS 550 million, indicating a near 110-fold increase since its inception.
The latest surge in stock value can be attributed to events such as the NVIDIA GTC conference in San Jose, where CEO Jensen Huang identified photonics as a foundational component of future AI infrastructure. This indicates a strategic pivot towards substituting copper-based data transmission with light-based solutions.
Shortly thereafter, the Optical Fiber Communications Conference in Los Angeles, typically considered a low-profile industry event, gained newfound significance. At this conference, U.S. photonics company Lumentum provided an impressive forecast: projecting annual revenue of $2 billion today to a quarterly run rate at that level by next year. This forecast propelled Lumentum’s valuation to approximately $50 billion, marking an 80% increase in under three months, and contributed to the overall momentum in photonics-related stocks.
For Tower’s CEO, Russell Ellwanger, who has been at the helm for 25 years, this moment signifies a long-term investment starting to yield returns. Tower, once perceived as an overly ambitious and struggling enterprise, has cultivated its identity as a specialised manufacturer of niche chips. This niche, silicon photonics, is now emerging as a crucial component of AI infrastructure.
Until recently, photonics was regarded as a relatively narrow field, primarily utilised for connections within data centres. However, as data volumes in server farms grow exponentially and demand for speed intensifies, traditional copper infrastructure is reaching its limitations. The industry is increasingly transitioning towards photonics, which facilitates faster data transfer while consuming less energy, a vital consideration in scaling AI systems.
Tower has been making substantial investments to prepare for this transition. The company has committed $650 million to enhance its photonics manufacturing capacity, followed by an additional $270 million announced earlier this year, bringing the total planned investment to almost $1 billion. According to Ellwanger, approximately 70% of the new capacity is already booked or in advanced negotiations, supported by customer prepayments. Most expansion projects are expected to be finalised by the end of 2026.
In recent weeks, Tower has also unveiled several strategic partnerships, including a collaboration with NVIDIA, a move regarded by industry experts as a significant endorsement.
Ellwanger had alluded to this trajectory late last year, noting, ‘There is a transition from previous platforms to photonics, which currently has an adoption rate of only 20-30% and is expected to reach 90-100%. The target market for what we do today could triple.’
By February, Tower translated this optimistic outlook into financial projections. Under its new model, the company anticipates doubling its revenue by 2028 relative to 2025, reaching $2.8 billion, while net profit is expected to triple to $750 million. As early as 2026, nearly half of its revenue is projected to stem from AI-related activities, approximately $1 billion.