Bank of America just told investors that one of this year’s biggest semiconductor winners is still cheap.
On Aug. 7, BofA Securities started covering Tower Semiconductor (TSEM) with a Buy rating and a $367 price target.
The call landed days after Tower posted the best quarter in its history. Shares had already tripled over the past year, so a fresh Buy at these levels caught attention.
What makes the bet interesting is where BofA sees the growth coming from. It is not the chips that run AI models. It is the chips that move data between them.
That distinction shapes the entire call, and it explains why a BofA analyst thinks a stock this hot still has a long way to go.
What Bank of America sees in Tower Semiconductor stock
Tower is a specialty foundry based in Migdal Haemek, Israel.
It makes chips to other companies’ designs, focusing on analog and mixed-signal parts rather than the leading-edge processors that get most of the headlines.
BofA analyst Oliver Wong set his $367 target using 20 times Tower’s projected 2028 enterprise value to EBITDA, Investing.com reported.
His firm’s earnings estimates for 2027 and 2028 sit 13% and 28% above the Wall Street consensus.
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Wong believes the market has not priced in how fast one part of Tower’s business is growing.
Tower holds a leading share in silicon photonics chips, which are used in the transceivers that carry data across AI data centers.
BofA expects Tower’s silicon photonics revenue to double in 2026, with more growth visible into 2027 and beyond.
Why silicon photonics chips matter for AI data centers
Silicon photonics is a way of moving data with light instead of electrical signals. Inside a data center, that means faster links between servers while using less power.
AI systems need to shuttle enormous amounts of data between thousands of chips. Copper wiring struggles with that job at scale, so optical connections are taking over.
Here is the part investors often miss. The processors do the math, but the optical parts move the data, and Tower makes those parts.
That positioning is why BofA sees Tower benefiting from AI spending without competing directly against Nvidia or its rivals.
Demand is showing up in the numbers already:
- Silicon photonics revenue grew more than 270% year over year in the second quarter of 2026.
- It reached an annualized run rate above $680 million.
- Tower expects that run rate to top $1 billion by the fourth quarter of 2026.
Tower Semiconductor’s record quarter backs up the target
The BofA call followed a strong earnings report. On Aug. 4, Tower posted record second-quarter results, according to its press release.
Revenue reached $460 million, up 24% from a year earlier. Net profit rose to $91 million, up 95% from the same quarter in 2025.
Gross margin hit 30%, an all-time high for the company. Tower also guided third-quarter revenue to about $520 million, which would extend the growth streak.
Management raised its 2028 target to $3.6 billion in revenue and $1.2 billion in net profit. CEO Russell Ellwanger said those figures are already committed by customer orders.
Those results gave BofA the financial base to justify an aggressive target on a stock that had already climbed sharply.
The Japan expansion behind Tower’s growth plan
Tower is spending heavily to add capacity, and Japan sits at the center of that plan.
In July, the company announced a dual-track expansion of its 300mm silicon photonics and packaging operations, confirmed in a press release.
The project costs about $3 billion. Japan’s government is covering roughly $1 billion of that through grants, leaving Tower to pay the rest.
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Tower is reviving an old, unused plant, previously called Fab 6, so it can make silicon photonics chips there. The company expects that plant to start production in the fourth quarter of 2027.
A second, new plant is planned next to one of Tower’s current sites. Construction depends on finalizing agreements first. Once it’s running, Tower expects it to boost profits starting in 2029.
That timeline matters for investors. Most of the payoff arrives years out, not next quarter.
How Tower Semiconductor stock has performed against the market
Tower has been one of the strongest semiconductor stocks over the past year. The gains have been dramatic.
- Over the past year, TSEM rose about 360%, Investing.com noted.
- Over the same period, the S&P 500 returned a fraction of that.
- On the BofA news, TSEM jumped 12% in a single session to close at $252.49.
That run is also why some investors are cautious. A stock that has tripled can carry high expectations, and any slip in demand tends to hit hard.
What Tower Semiconductor stock investors should watch next
BofA’s target assumes Tower keeps winning as optical demand outpaces supply. Several things still need to go right for the stock to reach $367.
- Silicon photonics revenue needs to keep doubling as forecast.
- The Japan expansion needs to stay on schedule through 2027.
- Customer orders backing the 2028 model need to hold firm.
- Margins need to stay near record levels as capacity grows.
There are real risks. According to Investing.com, InvestingPro data flags the stock as trading above its estimated fair value, which means much of the good news may already be included in the price.
The company also depends on continued AI infrastructure spending. If that spending slows, Tower’s optical business would feel it directly.
For investors, the practical question is whether you are buying the business or the momentum. Tower’s earnings are real and growing, but the stock has already priced in a lot of optimism.
A useful approach is to separate the two decisions:
One is whether Tower is a strong company, which the numbers support. The other is whether $252 is a good entry point toward a $367 target, which depends on your patience and your tolerance for a volatile chip stock.
BofA is betting the growth is durable enough to carry the stock higher. Tower Semiconductor’s guidance also points the same way.
The next few quarters of silicon photonics revenue will show whether that confidence holds.
Related: Bank of America revamps AMD stock price target for 2026
