Teradyne Earnings: Better Late Than Never to the Tidal Wave of AI Growth

Key Morningstar Metrics for Teradyne

• Fair Value Estimate
  : $275.00
• Morningstar Rating
  : ★★
• Morningstar Economic Moat Rating
  : Wide
• Morningstar Uncertainty Rating
  : High

What We Thought of Teradyne’s Earnings

Teradyne TER reported stellar first-quarter results and second-quarter guidance. March-quarter sales rose 87% year over year to $1.3 billion, and June quarter sales guidance of $1.2 billion implies 84% year over year growth. Shares fell 15% intraday, likely due to soft second-half guidance.

Why it matters: Teradyne is finally reaping the hefty rewards of AI spending across compute and memory chip testing. We like the firm’s position in DRAM, NAND, and custom AI compute chip testing, and believe a nascent ramp as a second source at NVDA provides further upside.

• Teradyne received its first orders from Nvidia, shipping in the second quarter. Teradyne hasn’t previously sold to Nvidia, and even a minority share here offers immense growth potential. Management expects $50 million in 2026 sales, and we expect a strong ramp to follow.
• Teradyne attributed 70% of its total demand in the quarter to AI, across chip testing, product testing, and robotics. We see chip testing as its primary driver, but appreciate its penetration in network and storage testing, also benefiting from immense AI infrastructure investments.

The bottom line: We raise our fair value estimate for wide-moat Teradyne to $275 per share from $250 as we raise our growth forecast through 2028, driven by higher AI investments. Shares are now closer to our valuation, but we continue to see immense optimism priced into the stock today.

• We now expect close to 40% growth in 2026, at the high end of management’s guidance given last quarter. This implies a meaningfully softer second half of the year, which we think led to the negative market reaction. We attribute this to lumpy orders, and still see growth highly positively.
• We now model above Teradyne’s target model, which we expect to hit in 2028. In 2028, we model in line with Teradyne’s $6 billion revenue target, but above on profitability with strong operating leverage. We model above the high ends of operating margin and EPS targets of 34% and $12.00.