Tower Semiconductor's (TSEM) "positive fundamental story remains intact," while the stock's outperformance has already delivered the anticipated rerating, Wedbush Securities said Wednesday in a report.

The firm cut its rating on Tower stock to neutral from outperform and maintained its $125 price target.

Tower's shares fell 2.4% in recent Wednesday trading, paring earlier losses.

The company's "valuation is that after recent gains, its forward multiple is now relatively in line" with optics-sector peers, Wedbush said.

Tower remains a leading manufacturer for silicon-photonics chips, and a tightening indium phosphide market suggests optical demand is strong, Wedbush said.

The company should be able to ramp up silicon photonics revenue from new lines faster than the expected two-year time frame, given the "strong demand backdrop and the timing of equipment installation," the report said.

Wedbush also cited potential for Tower to announce further expansion plans in the coming quarters, though a lack of data leaves the outlook too uncertain "to confidently evaluate the extent of likely additional upside."

Higher component prices are expected to serve as a headwind for consumer-electronics production, particularly handset volumes, Wedbush said, reiterating its previous outlook.

Price: 117.76, Change: -2.91, Percent Change: -2.41