Tower Semiconductor (TSEM) Stock Could Be 8.6% Undervalued After IQE Silicon Photonics Deal - simplywall.st

Tower Semiconductor (TSEM) has attracted renewed investor attention following a multi-year agreement between IQE plc and the company to supply indium phosphide epiwafers for AI data center optical con... Read original →

Tower’s partnership with IQE on indium phosphide epiwafers marks a pivotal shift where silicon photonics transitions from optional to essential in AI data centers. This deal secures upstream material supply, accelerating the adoption of transmit-receive optical modules at 800G/1.6T and lifting ASPs for photonic ICs. However, Tower’s reliance on non-EUV, mature-node processes creates a strategic divergence from TSMC and Intel’s integrated 3nm photonics roadmaps—favoring its niche foundry model but amplifying customer concentration risk, especially if hyperscalers vertically integrate. Compounding this, U.S. CHIPS Act subsidies have yet to cover InP-based photonics, exposing Tower’s Israel and Texas fabs to potential compliance cost spikes under tightening export controls. Over the next 12–24 months, valuation sustainability hinges on CPO standardization timelines: delays could trigger sharp corrections, while entry into Taiwan, China or Hong Kong, China data center supply chains might unlock a new growth vector.