Tower Semiconductor (TSEM.O): Agnostic exposure to optical scaling – Initiate at OW

Tower Semi is the leading silicon photonics foundry. Optical is set to be one of the fastest-growing semi end markets and Tower Semi is a key facilitator. Competition is coming but Tower Semi is well placed and offers agnostic exposure. We initiate at OW with a $310 price target. We see Tower Semi as the leading silicon photonics foundry evidenced by its leading market share in pluggable and process performance from two decades of ecosystem development. We expect optics to be one of the fastest growing semi end markets as connectivity for AI is seeing ever increasing demand. Its accumulated knowledge, strong customer relationships, open platform and geographically diverse manufacturing footprint put it in a strong position to benefit. LightCounting expects Ethernet units to grow at a 24% CAGR from 2026 to 2031. Given the industry's attractive growth and margins, competitors are aiming to capture their share of the market. STM has secured AWS business, TSMC is targeting CPO with its COU