Mizuho bullish on Tower Semiconductor, points to AI optical growth

Investing.com -- Mizuho revealed Friday that it has started coverage of Tower Semiconductor with an Outperform rating and a $300 price target.

Analyst Vijay Rakesh sees Tower as the leading and fastest-growing contract manufacturer of silicon photonics chips, which are used in optical connections between AI data center servers.

"Optical connectivity is key to scaling data center (DC) bandwidth and fueling the AI DC revolution for the next decade," Rakesh wrote.

Mizuho expects the market for manufacturing silicon photonics chips to grow from about $1.3 billion in 2025 to $8.5 billion by 2029, a compound annual growth rate of 60%. It forecasts Tower's revenue in that area will grow faster, at about 76% a year, to about $3.8 billion by 2029.

"TSEM's heterogeneous packaging technology makes it the market share leader for SiPho pluggable optical connectivity," Rakesh wrote. The analyst said this technology comes from Tower's 2008 merger with Jazz Semiconductor, and he estimates Tower will hold more than 40% of the market in 2026.

Mizuho forecasts Tower's total revenue will grow 33% a year to $4.9 billion by 2029, ahead of consensus of $4.5 billion. It sees gross margin rising from about 23% to 50% and expects earnings per share to grow about sevenfold to $16.51 and free cash flow to reach about $1.8 billion.

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