Tower Semiconductor Turns Grants Into Growth

Tower Semiconductor just put government money and customer demand behind a multibillion-dollar factory expansion. The specialty-chip foundry said Tuesday it will dramatically expand its 300-millimeter silicon-photonics, silicon-germanium and advanced-packaging capacity in Japan, with the government providing $1 billion in grants. Tower expects to invest up to $3 billion net of grants, but it also raised its 2028 targets to approximately $3.6 billion in revenue and $1.2 billion in net profit, up from $2.8 billion and $750 million. Shares closed up about 11.2% at $255.49 after climbing as high as $277, as investors decided the much larger spending plan came with the prospect of a much stronger profit outlook.

Silicon photonics uses light to move information between chips, while silicon-germanium technology supports faster and more energy-efficient semiconductor components. They may not receive the same attention as the processors doing AI calculations, but they provide part of the communications plumbing that keeps thousands of those processors working together. Tower’s first expansion track will repurpose its former Fab 6 facility in Arai for silicon-photonics production and advanced optical packaging while increasing output from its existing Fab 7 operation in Uozu. The added capacity is expected to be ready for full production during the fourth quarter of 2027.

The strongest part of Tower’s expansion case may be the demand already under contract. The company disclosed in May that it had signed contracts covering $1.3 billion of silicon-photonics revenue for 2027 and received $290 million in customer prepayments to reserve capacity. It said an even larger contractual wafer commitment was in place for 2028, with additional prepayments due by January 2027. That gives the expansion more support than a factory plan built entirely around forecasts. The updated 2028 targets are based solely on the first expansion track, leaving the planned factory beside Fab 7 as additional growth capacity rather than something Tower needs to deliver the new numbers.

That second track still carries plenty of execution risk. The new facility remains subject to definitive agreements, while construction costs, equipment installation, customer demand and factory utilization will determine whether the investment eventually produces the returns management expects. Tower says the facility should begin contributing meaningfully in 2029, meaning investors are being asked to look several years down the production line. Tower still has to build the capacity and fill it, but Tuesday’s rally showed Wall Street is willing to pay up when an AI factory plan arrives with customers, cash and a government check already attached.

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