Teradyne Earnings: AI-Led, but Diversified Growth Looks Positive, and Shares Look Undervalued

Key Morningstar Metrics for Teradyne

• Fair Value Estimate
  : $350.00
• Morningstar Rating
  : ★★★
• Morningstar Economic Moat Rating
  : Wide
• Morningstar Uncertainty Rating
  : High

What We Thought of Teradyne’s Earnings

Teradyne TER reported good third-quarter results headlined by strong growth from artificial intelligence. Total sales rose 70% year on year to $1.31 billion, with AI contributing to about 60% of sales across all segments. The fourth-quarter outlook implies similarly strong revenue.

Why it matters: Teradyne is benefiting from AI-driven demand across chip and product testing. This is most concentrated in compute chip testing, but it’s also contributing to growth in power chips, memory, and networking chips. We appreciate the share gains in compute and strong holistic growth.

• Teradyne’s expanded compute portfolio is attractive and driving share gains. We expect rising penetration into Nvidia as a second source to Advantest and are pleased to hear the firm has now qualified two more XPU customers (on top of Google) working toward volume shipments.
• We see Teradyne set up for more strong growth in 2027 and 2028, mirroring our front-end chip equipment expectations. Chip supply is deeply constrained, driving big increases in capacity. We also see rapidly rising complexity in chip design creating a multiplicative benefit for Teradyne.

The bottom line: We maintain our $350 per share fair value estimate for wide-moat Teradyne. Our long-term thesis for share gains in compute and broad-based growth through 2028 is intact. Long-term investors have a good entry point for a high-quality name with good AI exposure.

• Compute testing is Teradyne’s largest bucket despite lower share versus rival Advantest; this is our primary growth driver going forward. Still, we expect broad-based growth across Teradyne’s chip testing and other markets, with AI as a contributor across the board.
• We are well ahead of Teradyne’s long-term target model, which now looks stale. We expect the firm to well eclipse $6 billion in revenue in 2027 and exceed 34% in non-GAAP operating margin. We expect management to materially raise its target model on the fourth-quarter call.