Company Reports

We affirm our $135 fair value estimate for wide-moat Teradyne as we maintain our longer-term recovery thesis following good first-quarter results. Teradyne’s March-quarter results and second-quarter guidance beat our expectations, but management continues to issue conservative guidance for the back half of 2024. We’re pleased with Teradyne’s ability to benefit from generative artificial intelligence chip spending, but we think its core mobile phone chip market will be weak through the rest of the year. We believe Teradyne’s current sales levels are well below what we consider normal demand, but we don’t expect a significant rebound in 2024. We’ve also lost some confidence in management’s outlook for a longer-term recovery and forecast Teradyne to miss its 2026 sales target. We continue to think shares are undervalued but don’t see meaningful catalysts for the stock until 2025.

We lower our fair value estimate for wide-moat Teradyne to $135 per share, from $147, as we push out our forecast for a demand recovery. Teradyne’s results met our expectations but first-quarter guidance and 2024 commentary was significantly weaker than our model. We continue to believe that Teradyne’s current demand is well below healthy levels and will normalize eventually, but we're no longer confident this will occur in the short term. We now only expect modest growth in 2024. Our wide moat rating is intact, and we believe that when demand does return, particularly for mobile phone chip testing, Teradyne is well positioned to capitalize on it with a robust portfolio. Even as we temper our bullishness on the name and lower our short-term expectations, we see shares as undervalued against the firm’s strong competitive position and long-term opportunity. We just no longer see significant catalysts to the stock in 2024.

Teradyne is a heavyweight supplier of automated test equipment for semiconductors, boasting market-leading capabilities that run the gamut of chips. It is one of two companies worldwide that can produce testers for the most cutting-edge semiconductors, thanks to robust engineering talent across hardware and software and a structural lead in organic investment. The firm is a vital partner to chipmakers across the industry and has an impressively strong relationship with Apple and Taiwan Semiconductor. Teradyne’s market leadership exhibits itself in industry-leading margins, strong returns on invested capital, and a top market share. We give the firm a wide economic moat rating.

Teradyne is a heavyweight supplier of automated test equipment for semiconductors, boasting market-leading capabilities that run the gamut of chips. It is one of two companies worldwide that can produce testers for the most cutting-edge semiconductors, thanks to robust engineering talent across hardware and software and a structural lead in organic investment. The firm is a vital partner to chipmakers across the industry and has an impressively strong relationship with Apple and Taiwan Semiconductor. Teradyne’s market leadership exhibits itself in industry-leading margins, strong returns on invested capital, and a top market share. We give the firm a wide economic moat rating.

We lower our fair value estimate for shares of wide-moat Teradyne to $147, from $157, after it reported a quarter in line with our expectations but provided weaker forward-looking commentary. Teradyne's primary semiconductor testing market continues to be weighed down by low smartphone demand and a precipitous downturn in the memory chip market. We think the overall chip test market has troughed and view management's outlook for growth in 2024 positively even as management's commentary was more tepid than we'd hoped. Teradyne's chip exposure opens it up to cyclicality as we've seen the past two years, but we are undeterred in expecting long-term growth drivers toward higher chip complexity over the course of these cycles. Teradyne is well-positioned to profit from a cyclical rebound in our view, and we continue to see the firm as the preeminent player in chip test with a durable wide economic moat. Despite our fair value trim, we see shares as deeply undervalued. Current prices imply practically no rebound from Teradyne's cyclical trough, and we see improving demand as a catalyst in 2024.

We maintain our $157 fair value estimate for Teradyne after the firm reported good second-quarter results amid the throes of a chip downturn. Teradyne raised its view of the overall chip testing market for 2023. While we still expect weak results through 2023, a more positive outlook for the second half supports our belief in a strong rebound to begin in 2024. However, the firm’s robotics business is struggling in 2023 and weighing on overall results. The chip business is the primary driver of results and our long-term thesis on Teradyne. We reiterate our view that Teradyne has sold off excessively on a chip downturn and that current levels provide strong upside for investors. Teradyne is a behemoth in chip testing, which earns it a wide moat and positions it well for secular growth through cycles. The shares continue to look cheap to us.

Teradyne is a heavyweight supplier of automated test equipment for semiconductors, boasting market-leading capabilities that run the gamut of chips. It is one of two companies worldwide that can produce testers for the most cutting-edge semiconductors, thanks to robust engineering talent across hardware and software and a structural lead in organic investment. The firm is a vital partner to chipmakers across the industry and has an impressively strong relationship with Apple and Taiwan Semiconductor. Teradyne’s market leadership exhibits itself in industry-leading margins, strong returns on invested capital, and a top market share. We give the firm a wide economic moat rating.

We trim our fair value estimate for wide-moat Teradyne to $157 per share, from $167, behind lower short-term expectations for the firm's nonchip testing segments. First-quarter results were stronger than we expected, thanks to supply and demand upside in the majority semiconductor test segment. Conversely, declines for the wireless and system test businesses in 2023 now appear steeper than we had previously forecast. We retain our thesis for Teradyne's results to bottom out in 2023 and see an immense rebound in 2024 behind reinvigorated chip test demand. Management reiterated its 2026 target model, which includes double-digit compound annual growth and aligns with our forecast. Investors will require patience for 2023, but we reaffirm our belief that shares of this testing behemoth are seriously undervalued.

Teradyne is a heavyweight supplier of automated test equipment for semiconductors, boasting market-leading capabilities that run the gamut of chips. It is one of two companies worldwide that can produce testers for the most cutting-edge semiconductors, thanks to robust engineering talent across hardware and software and a structural lead in organic investment. The firm is a vital partner to chipmakers across the industry and has an impressively strong relationship with Apple and Taiwan Semiconductor. Teradyne’s market leadership exhibits itself in industry-leading margins, strong returns on invested capital, and a top market share. We give the firm a wide economic moat rating.

Teradyne is a heavyweight supplier of automated test equipment for semiconductors, boasting market-leading capabilities that run the gamut of chips. It is one of two companies worldwide that can produce testers for the most cutting-edge semiconductors, thanks to robust engineering talent across hardware and software and a structural lead in organic investment. The firm is a vital partner to chipmakers across the industry and has an impressively strong relationship with Apple and Taiwan Semiconductor. Teradyne’s market leadership exhibits itself in industry-leading margins, strong returns on invested capital, and a top market share. We give the firm a wide economic moat rating.

We maintain our $167 fair value estimate for wide-moat Teradyne after reporting fourth quarter results in line with our expectations, and it remains one of our top picks in Technology. We see 2023 being challenging for Teradyne amid lower demand across its served markets, but our long-term expectations remain intact and bullish. We continue to anticipate a meaningful rebound in 2024, led by recovering end market demand and a broad ramp of 3-nanometer chip production. We note Teradyne's new 2026 model guidance met our existing expectations. We see shares as significantly undervalued. We think the market is ignoring Teradyne's long-term opportunity and strong competitive position in the face of a cyclical downturn in the short-term. While the firm is exposed to cyclicality, we are confident in long-term trends toward chip complexity driving demand across cycles, and see Teradyne's strong positioning in advanced CPU testing and key customers like Apple, Qualcomm, and TSMC as encouraging.

Teradyne is a heavyweight supplier of automated test equipment for semiconductors, boasting market-leading capabilities that run the gamut of chips. It is one of two companies worldwide that can produce testers for the most cutting-edge semiconductors, thanks to robust engineering talent across hardware and software and a structural lead in organic investment. The firm is a vital partner to chipmakers across the industry and has an impressively strong relationship with Apple and Taiwan Semiconductor. Teradyne’s market leadership exhibits itself in industry-leading margins, strong returns on invested capital, and a top market share. We give the firm a wide economic moat rating.

We maintain our $167 fair value estimate for wide-moat Teradyne after it reported upside in third-quarter results and guided in line with our expectations. Teradyne continues to suffer from a worsening chip market. We maintain our expectations for soft semiconductor demand to impact the firm’s revenue through the first half of 2023 and for a meaningful snapback in 2024. While short-term results are poor, we are confident in the durability of demand—even while being pushed out. We view slower orders as reflecting near-term demand weakness and not a departure from chipmakers’ long-term capacity or capital investment plans. Teradyne’s equipment is vital for chip production, particularly for advanced chips that sell into high-end smartphones and computing. We see product ramps in 2023 and 2024 driving a return to growth. Shares rose 6% in early market trading despite low guidance, and we think downcycle risk is already entirely priced in. We see significant upside and view Teradyne’s current valuation as ignoring a chip market rebound at any point in the future.

We’re shaving our fair value estimate for wide-moat Teradyne to $167 per share, from $172 previously, in the wake of poor second-half guidance that reflects a souring macroeconomic environment. Nonetheless, we believe Teradyne’s long-term fundamentals are resolute, and it remains one of our top picks in the tech sector.

Teradyne is a heavyweight supplier of automated test equipment for semiconductors, boasting market-leading capabilities that run the gamut of chips. It is one of two companies worldwide that can produce big iron testers for the most cutting-edge semiconductors, thanks to robust engineering talent across hardware and software and a structural lead in organic investment. The firm is a vital partner to chipmakers across the industry and has an impressively strong relationship with Apple. Teradyne’s market leadership exhibits itself in industry-leading margins, strong returns on invested capital, and a top market share. We give the firm a wide economic moat rating.

We are maintaining our $172 fair value estimate for Teradyne after the company's first-quarter results and second-quarter guidance met our expectations. Teradyne is weathering weakness due to product delays at TSMC, its largest customer, but we continue to view this as a short-term pushing out of demand and remain confident in the firm’s long-term model. Outside of TSMC, we think broad demand for Teradyne’s testing equipment is very strong. We also are pleased with how the firm is navigating supply constraints and regional COVID-19 shutdowns. We think Teradyne will benefit in the long term from increasing chip complexity for new applications and view it in a position to capitalize on demand with its leading technology, which is reflected in our wide moat rating. The shares appear materially undervalued to us, as we think the market reaction to TSMC delays has been myopic.

Teradyne is one of our top picks in technology. We think our $172 fair value estimate for the shares offers material upside to long-term investors in a wide-moat-rated firm with strong growth opportunities in semiconductor testing and industrial automation. The shares look increasingly attractive to us following a significant sell-off in response to the company's first-quarter guidance, which we view as a nearsighted market overreaction. Teradyne expects 2022 semiconductor testing sales to be hampered by a delayed ramp-up at TSMC for its 3-nanometer node, which we expect to produce chips for the Apple iPhone along with notebooks and server CPUs. But we view this as delayed, not destroyed, demand and expect all the lost sales to be recouped in 2023 and 2024.

We’re maintaining our $172 fair value estimate for Teradyne, despite shares selling off on weak short-term guidance. Teradyne reported good fourth-quarter results but guided for a steep drop in semiconductor test revenue in the first half of 2022, relating to a slower-than-previously-expected transition at TSMC to its 3-nanometer manufacturing process. Shares dipped as much as 28% in Jan. 27 trading, but we view this as a near-sighted overreaction. We think the slower transition at TSMC is merely pushing out demand for Teradyne’s automated test equipment into 2023. We don’t foresee demand destruction, given Teradyne’s vital role for customers and its equipment being a capital expense that benefits from a degree of separation from volatile short-term supply and demand dynamics. We expect Teradyne’s foregone sales from 2022 to be almost entirely recouped in 2023 and 2024. In fact, management increased its medium-term sales guidance for 2024 to feature stronger growth across all segments--inclusive of the near-term chip testing weakness--which now fits our previously above-guidance model targets. We’re steadfast in our long-term thesis that Teradyne is an invaluable partner to its foundry customers and that it will benefit from greater chip complexity and smaller geometries, regardless of this near-term delay at a single customer. Following Thursday’s sell-off, we view shares as fundamentally undervalued, and view the current valuation as an attractive entry point for long-term investors in a wide-moat firm that we expect to appreciate once the current customer production hiccups ease.

Teradyne is a heavyweight supplier of automated test equipment for semiconductors, boasting market-leading capabilities that run the gamut of chips. It is one of two companies worldwide that can produce big iron testers for the most cutting-edge semiconductors, thanks to robust engineering talent across hardware and software and a structural lead in organic investment. The firm is a vital partner to chipmakers across the industry and has an impressively strong relationship with Apple. Teradyne’s market leadership exhibits itself in industry-leading margins, strong returns on invested capital, and a top market share. We give the firm a wide economic moat rating.

We are initiating coverage of Teradyne with a $172 fair value estimate, wide economic moat rating, and stable moat trend rating. We forecast 11% compound annual sales growth through 2025 and non-GAAP operating margin expansion from 30% in 2020 to 35% in 2025. The shares appear fairly valued to us, but we think a modest pullback could create room for investors looking for an agnostic long-term play on the semiconductor market.