Tower Semiconductor's (TSEM) new plans to expand cleanroom space suggest the company's management has increased confidence that demand will exceed its optics-oriented expansion, Wedbush said in a note Thursday.

Tower Semiconductor has signed a framework agreement to buy full ownership of Japan-based Tower Partners Semiconductor's 12-inch fab and foundry business, according to a Wednesday statement from Tower Semiconductor and Nuvoton Technology.

Wedbush also highlighted the fact that Tower Semiconductor is seeking subsidies from Japan's Ministry of Economy, Trade and Industry for plans to expand a fab there.

The additional capacity was not contemplated in Tower Semiconductor's previously provided long-term model, and suggests "meaningful upside" compared with that previous guidance, the investment firm said.

Wedbush said it is not yet changing its model, price target or rating for Tower Semiconductor as it awaits more clarification into how this year is progressing for the company, as well as any updates surrounding the pace at which previously announced capacity may increase to optimal utilization levels.

"At the same time, we struggle to see how this news can't suggest that management is more confident on both these fronts," the note said.

Wedbush has a neutral rating and $140 price target on Tower Semiconductor.

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