Tower Semiconductor is a specialty foundry.

It manufactures chips for other companies, but it does not compete directly with TSMC at the most advanced logic nodes. Tower focuses on high-value specialty processes like silicon photonics, silicon germanium, RF, analog, power management, image sensors, and mixed-signal chips.

The most important part is silicon photonics.

AI data centers need to move huge amounts of data between GPUs, switches, racks, and data centers. Every training run needs constant communication between GPUs, memory, switches, racks, and storage. The bigger the AI model gets, the more important the network becomes.

Inside a normal data center, data often moves through copper wires and electrical signals. Copper works well over short distances, but it becomes less efficient as speeds rise. At very high bandwidth, copper creates more signal loss, more heat, more power consumption, and more complexity. That’s why current copper cables struggle as bandwidth and power demands rise (read more on optical AI infrastructure chain in the Photonics theme). Optical connections solve part of that problem by moving data with light and Tower Semiconductors manufactures the photonic chips that make this possible.

Its Q1 2026 earnings result was decent.

Revenue was $414 million, up 15% year over year. Gross profit was $111 million, up 52%. Operating profit was $65 million, up 96%. Net profit was $65 million, up from $40 million last year. The company guided Q2 revenue to a record $455 million, up 22% year over year and 10% sequentially.

The numbers weren’t mind-blowing. There are definitely faster growing companies. But the most important number was not revenue.

It was the silicon photonics contract book.

TSEM signed customer contracts for $1.3 billion of silicon photonics revenue for 2027. Customers also paid $290 million in prepayments to reserve capacity. That is an incredibly strong signal. Customers do not pay upfront unless they really really need the capacity.

That’s why it is expanding aggressively. It is investing heavily in silicon photonics and silicon germanium capacity, with total planned investment around $920 million.

Right now, it’s building another base and setting up a potential breakout to new all-time highs.