1.6T Optical Modules, Tower's New Collaboration with NVIDIA

Tower Semiconductor announces that it is expanding AI infrastructure deployment through high-performance silicon photonics technology, aiming to support 1.6T data center optical modules that comply with NVIDIA network protocols… Analysts from Yole Group have provided insights on this development.

“Tower Semiconductor’s collaboration with NVIDIA sends a strong signal that data center interconnects are entering the next growth phase. The rapid expansion of AI clusters has made the bottleneck increasingly about the efficiency of moving data between GPUs, switches, and racks.” — Lakshman Srinivasan, Photonics Market and Technology Analyst at Yole Group

This announcement points to a tangible industry shift: by aligning leading AI network demands with mature silicon photonics manufacturing bases, 1.6T optical modules are becoming closer to practical deployment.

The key takeaway is not just “higher bandwidth,” but also the readiness of the ecosystem. As optical devices move from 800G to 1.6T, success depends on repeatable manufacturing, predictable yields, and the ability to scale supply, because this transition will be driven by real construction projects. In this context, Tower’s silicon photonics platform is crucial — it provides a proven production environment, with many photonic integrated circuit (PIC) teams already familiar with validation, industrialization, and mass production.

Equally important, the recent path for 1.6T pluggable modules is expected to remain pragmatic. This means the industry can leverage current conventional manufacturing technologies to move forward, while continuing to innovate in tighter integration over time.

Overall, this partnership is a positive data point for the optical transceiver ecosystem. It further confirms that networking and optical devices are now key drivers of AI performance, and that the 1.6T cycle is shifting from “small batch ramp-up” to “mass deployment,” with the supply chain lining up accordingly.

Tower Semiconductor, Market Cap Surges 300%

This Thursday, Tower Semiconductor’s stock price surged again, pushing the Israeli chipmaker’s market cap past $15 billion.

This marks a significant increase in Tower’s valuation: its market cap is now roughly three times the $5 billion price Intel committed to pay two years ago before regulators failed to approve the acquisition. At that time, the deal was ultimately abandoned by Intel. The failure was widely seen as a setback for Tower. Today, it increasingly appears to be a turning point.

Over the past six months, Tower’s stock has risen more than 160%, with a sharp increase this year alone, causing its valuation multiple to even surpass NVIDIA’s. This rally has transformed Tower from a long-overlooked specialty chip manufacturer into one of the most notable beneficiaries of AI infrastructure development.

For Tower CEO Russell Ellwanger, this shift is reflected not only on trading screens but also in the manufacturing floors. “When I go home at night, my family, even neighbors, talk to me about Tower’s stock,” he said in a Calcalist interview last month. “They think I’m a little special.”

Russell Ellwanger has led Tower for twenty years, mostly staying low-profile. For years, the company was seen as a niche analog chip maker, profitable but not closely tied to the industry’s main growth engines. As data centers become overwhelmed under AI workloads, this view has changed, prompting a rethinking of how data is transmitted within servers.

Tower has heavily invested in silicon photonics technology, which replaces traditional copper cabling with optical transmission. As GPU processors handle increasing amounts of data, copper cables become bottlenecks in speed and power consumption. In contrast, photonics can achieve higher throughput at lower energy costs, with energy efficiency becoming one of the most urgent challenges in AI.

Recently, the company announced a $300 million investment to expand its silicon photonics manufacturing line, following a $350 million investment disclosed earlier this year. Most of the new capacity will be built at Tower’s main manufacturing site in Migdal HaEmek, northern Israel, which will become the company’s largest photonics center once completed.

Ellwanger believes the market is just beginning to realize these impacts. Once the expansion is completed in the first half of 2026, Tower expects its photonics-related revenue to double, with annual revenue from AI-related products approaching $1 billion. He estimates that by the end of 2026, 40% to 45% of Tower’s revenue will come from data center applications.

This outlook helps explain the market enthusiasm. Even before the new capacity comes online, Tower has forecasted Q4 revenue of $440 million, with full-year 2025 revenue reaching $1.5 billion, up 14% year-over-year. Profits are expected to approach $200 million, a substantial figure for a hardware manufacturer.

The stock’s surge also reshapes perceptions of the failed Intel acquisition. After the deal fell through, Tower received $350 million in compensation but also lost what many saw as a safe exit opportunity. In hindsight, employee and investor views on the outcome are diverging more and more. Tower maintained independence, continued active investments during lengthy regulatory reviews, and ultimately secured a solid position in one of the key areas of AI infrastructure.

Source: Semiconductor Industry Observer

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