Tower Semiconductor: A Contrarian Opportunity in Q1 Earnings and Institutional Crosscurrents

As Tower Semiconductor (NASDAQ: TSEM) prepares to report Q1 2025 earnings on May 14, a fascinating contradiction emerges: while institutional investors like Harel Insurance are exiting en masse, strategic players such as Mivtachim and UBS are doubling down. This divergence, coupled with analyst optimism and a stark undervaluation relative to growth prospects, positions TSEM as a compelling contrarian play. Here’s why now is the time to buy—and why the earnings call could finally unlock this stock’s true potential.

The Contradiction: Institutions Split, Analysts Unanimous

The most striking feature of TSEM’s recent activity is the stark contrast in institutional behavior:

• Selective Selling: Harel Insurance reduced its stake by 34.6% in Q1 2025, citing concerns about near-term margin pressures and legacy business declines.
• Strategic Buys: Mivtachim (a $33.2M entrant) and UBS (with a +5,727% stake increase) are betting on Tower’s long-term growth in analog semiconductors, silicon photonics, and RF infrastructure.

Meanwhile, analysts are resolutely bullish. The consensus “Buy” rating, with a $60 price target—nearly 60% above TSEM’s current $37.50 price—reflects faith in Tower’s strategic bets. Why the disconnect?

Why the Bulls Are Right: TSEM’s Undervalued Growth Engine

Tower’s Q1 2025 guidance of $358M revenue (+10% YoY) is just the tip of the iceberg. Three key factors suggest this stock is primed for a revaluation:

1. Analog Semiconductor Demand Booming

Tower is a pure-play analog foundry—a sector critical to automotive, industrial, and 5G infrastructure. Its advanced platforms (SiGe, BCD, RF CMOS) are in high demand for:
- Silicon Photonics: Revenue tripled in 2024 to $105M, with 400G/Lane modulators driving data center/AI adoption.
- RF Infrastructure: A near-doubling in revenue to $241M in 2024, fueled by 5G and satellite communications.

2. Global Capacity Scaling: A $1.1B Growth Catalyst

Tower’s strategic partnerships are unlocking scale:
- TPSCo (Japan): A 51%-owned joint venture with Sony, producing 200mm/300mm wafers for high-margin automotive and industrial markets.
- Intel’s New Mexico Fab: A $300M investment to access 300mm capacity, critical for power management and analog chips.
- Agrate (Italy): A $500M 300mm fab with STMicroelectronics, targeting silicon photonics and RF.

These investments, though dilutive in the near term, will drive $2.66B annual revenue by 2026—45% above 2024 levels.

3. The Margin Turnaround Is Coming

Analysts project a 26.5% EPS growth in 2026 as Tower transitions away from low-margin legacy businesses (discontinued 150mm production) and ramps high-margin segments. The current P/E of 21.3x is far below the semiconductor sector average of 22.7x, despite its superior growth profile.

The Risks—and Why They’re Overblown

Bearish arguments center on near-term headwinds:
- RF Mobile Declines: Upper teens revenue drops due to Android market softness.
- Utilization Rate Volatility: Repurposing facilities (e.g., Fab 1 to 70% utilization) may temporarily drag margins.

But these are transitional. The real story is Tower’s pivot to high-growth, sticky revenue streams (silicon photonics, power management) that command pricing power. With 2025 guidance pointing to sequential growth acceleration in H2, the earnings call could finally silence skeptics.

Act Now: Buy Before the Revaluation

With shares down 31% YTD and trading at a 40% discount to the $60 price target, the risk-reward here is compelling. The earnings call on May 14 offers a catalyst to resolve this valuation discrepancy—especially if TSEM:
- Reaffirms its $2.66B 2026 revenue target.
- Highlights silicon photonics or RF wins with hyperscalers or automakers.
- Provides clarity on margin recovery timelines.

Conclusion: A Contrarian’s Dream

Tower Semiconductor is caught in a tug-of-war between short-term execution concerns and long-term structural growth. For investors willing to look past the noise, the Q1 earnings could be the inflection point. With strategic partners like Mivtachim and UBS already betting big, and analysts pricing in a near-term doubling, now is the time to act. The question isn’t whether Tower will grow—it’s whether you’ll miss the rally or be part of it.

Recommendation: Buy Tower Semiconductor (TSEM) ahead of the May 14 earnings call. Set a target of $60 and a stop below $35.

This analysis is based on Tower Semiconductor’s public disclosures and third-party research as of May 13, 2025. All data and forecasts are subject to change.