Great content, building on the framework Insane Analyst just put out nicely. Love when multiple of my favorite sources align. Citrini gave an indirect but fairly implied rec in his last piece as well. Looks like the derivative Twitter universe has caught on now as well which will kill our low beta but should push this towards ATH's soon I think. Either way, core position. I appreciate the modeling - it's always directional in nature but takes balls to take a stance.
CPO market is 1. very large and 2. very far out. It won't start cannibalizing transceiver share until 2029 ish, and around that time optical I/O might get adopted which puts OEs on every single XPU surging SiPho content. It could go either way we just don't know what's gonna happen.
That is the exact same logic as CRDO and why it won’t work. In CRDO’s case, you can argue copper and optical co-exist for a long time while near term earning explodes. However, the reality is people will put on significant discount to your terminal value. Seems like similar set up here …? it feels the CPO content value has to be the most critical thesis for rerating
CRDO is fundamentally a copper company. Nobody has an optical bull case for them. For TSEM there are people arguing for why its a CPO play. You can't compare the two. All I am saying is their share in CPO is constrained and it is not a pure CPO play like LITE or SOI. In an upside case the open CPO ecosystem could be large enough that they capture 50% of it.
That’s fair. It is a better setup. I guess I’m still struggling with how it can rerate if CPO participation is relatively low. Since everyone knows they gonna 5x capacity and it is trading at current level for a reason.
You can say the same for AAOI/COHR right? I can make a solid case for both of those (more so for AAOI) of why they're undervalued even with CPO looming over. It goes something like the transceiver market is growing faster than XPUs due to network density rising and faster datarates, and CPO cannibalizes copper more than pluggables esp for mid reach. And the market doesn't see the sheer volume of pluggables needed (see AAOI earnings). Just port that over and add that TSEM has relative CPO safety compared to most of the ecosystem. Think I still prefer LITE LT but this is due for a relative re-rating
AAOI has some trust issue as people simply don’t believe their numbers bc of what happened in the past. TSEM is generally well respected.
My point is, if you just take mgmt’s word and somehow arrive at a much higher valuation, it must bc of some critical things people are missing today. That is still not crystal clear to me in tower’s case here. If you argue for their CPO value is actually much higher than people thought, I can take that as a bull case, but it seems like thats not the case yet
Great content, building on the framework Insane Analyst just put out nicely. Love when multiple of my favorite sources align. Citrini gave an indirect but fairly implied rec in his last piece as well. Looks like the derivative Twitter universe has caught on now as well which will kill our low beta but should push this towards ATH's soon I think. Either way, core position. I appreciate the modeling - it's always directional in nature but takes balls to take a stance.
Indeed. We live in a Twitter driven PA world
if tower has
Very high content share in pluggables
Modestly low content share in CPO
How is CPO not a headwind ?
CPO market is 1. very large and 2. very far out. It won't start cannibalizing transceiver share until 2029 ish, and around that time optical I/O might get adopted which puts OEs on every single XPU surging SiPho content. It could go either way we just don't know what's gonna happen.
That is the exact same logic as CRDO and why it won’t work. In CRDO’s case, you can argue copper and optical co-exist for a long time while near term earning explodes. However, the reality is people will put on significant discount to your terminal value. Seems like similar set up here …? it feels the CPO content value has to be the most critical thesis for rerating
CRDO is fundamentally a copper company. Nobody has an optical bull case for them. For TSEM there are people arguing for why its a CPO play. You can't compare the two. All I am saying is their share in CPO is constrained and it is not a pure CPO play like LITE or SOI. In an upside case the open CPO ecosystem could be large enough that they capture 50% of it.
That’s fair. It is a better setup. I guess I’m still struggling with how it can rerate if CPO participation is relatively low. Since everyone knows they gonna 5x capacity and it is trading at current level for a reason.
You can say the same for AAOI/COHR right? I can make a solid case for both of those (more so for AAOI) of why they're undervalued even with CPO looming over. It goes something like the transceiver market is growing faster than XPUs due to network density rising and faster datarates, and CPO cannibalizes copper more than pluggables esp for mid reach. And the market doesn't see the sheer volume of pluggables needed (see AAOI earnings). Just port that over and add that TSEM has relative CPO safety compared to most of the ecosystem. Think I still prefer LITE LT but this is due for a relative re-rating
AAOI has some trust issue as people simply don’t believe their numbers bc of what happened in the past. TSEM is generally well respected.
My point is, if you just take mgmt’s word and somehow arrive at a much higher valuation, it must bc of some critical things people are missing today. That is still not crystal clear to me in tower’s case here. If you argue for their CPO value is actually much higher than people thought, I can take that as a bull case, but it seems like thats not the case yet