Tower Semiconductor (TSEM) has been in focus after expanding its silicon photonics collaboration with Xanadu for fault tolerant quantum computers and reporting record quarterly revenue and profitability, which gives investors fresh data to reassess the stock.

The recent quantum computing and AI photonics announcements appear to sit alongside a strong fundamental backdrop, with the current share price at US$128.47, a 90 day share price return of 33.75% and a 1 year total shareholder return of 184.6%. This suggests momentum has been building rather than fading.

If Tower Semiconductor's quantum and AI photonics push has caught your attention, this could be a good moment to see what else is emerging in the sector through our screener of 23 quantum computing stocks.

With Tower trading at US$128.47, sitting on a 184.6% 1 year total return and showing record revenue and profitability, the key question now is simple: is there still mispricing here, or are markets already baking in future growth?

Most Popular Narrative: 5.3% Undervalued

With Tower Semiconductor at $128.47 against a most followed fair value estimate of about $135.71, the current setup centers on whether its specialty foundry story supports that gap.

The proliferation of IoT, edge computing, and electrification across industrial, automotive, and consumer sectors strengthens multiyear demand for analog, mixed-signal, and specialty nodes, which are core Tower offerings, supporting a sustained long-term revenue growth trajectory and resilience in earnings.

Curious what is baked into that price gap? The narrative leans on brisk revenue expansion, fatter margins and a future earnings multiple that assumes Tower keeps winning specialty business.

Result: Fair Value of $135.71 (UNDERVALUED)

However, there are still real swing factors here, including more than US$1.15b of committed CapEx and heavy exposure to a relatively narrow SiPho and SiGe customer base.

Another View: Multiples Flash A Different Signal

While the most followed fair value of about $135.71 points to a 5.3% undervaluation, the current P/E of 65.6x tells a more cautious story. That is well above the US Semiconductor industry at 43x, the peer average of 53.2x, and the 43.9x fair ratio our model suggests the market could move toward.

If earnings or sentiment cool from here, that gap leaves less room for error on the current price. Investors may want to consider how much of the RF and SiPho narrative they are prepared to pay a premium for.

Next Steps

If this mix of strong returns and mixed valuation signals leaves you undecided, it is worth checking the numbers yourself and moving quickly while sentiment is strong. Then weigh those points against the 4 key rewards.

Looking for more investment ideas?

If Tower has sharpened your focus, do not stop here. Use the screener to line up your next set of high conviction opportunities today.

• Target quality at a discount by scanning our list of 54 high quality undervalued stocks that pair fundamentals with pricing that some investors may be overlooking.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.