Semi-conductor test-systems maker, Teradyne, Inc. (TER), posted a very impressive beat last night on strong AI-related demand. The Q4 guide tells us the company is only picking up steam. Take a look:
Teradyne CEO, Greg Smith, emphasized the outsized AI-impact on the press release:
“Growth was driven primarily by System-on-a-Chip (SOC) solutions for Artificial Intelligence applications and strong performance in memory…
As we look ahead to Q4, AI-related test demand remains robust across compute, networking and memory segments…
Q4'25 sales are expected to increase 25% sequentially and 27% from Q4'24."
The takeaway here is that with AI Inferencing inflecting now, these systems are requiring incrementally more compute, more intricate next-gen networking and optical wiring, and increased memory. This all means increased testing of these networks.
Teradyne’s guidance suggests a sharp acceleration into 2026. The company’s Q4 guide tells the story:
Fundamentally, these blowout forecasts now open the door for an Uber Bull Case, a potential $6.50 in EPS for next year and $8-$9.00 in 2027. Take a look at current estimates:
Technically, the stock is poised to break out of a 4-year base and move to all-time highs. The long-term “measured move” gets us to $270 by next summer/fall.
Buy the first flush. Long term sell orders will need to be digested in the $160s...But don’t wait long. TER can potentially go to $200, quickly.
In our experience, TER IS prone to gapping and failing. We are therefore keeping our position size small.
There are also cyclical factors which come back into play in 2027, which could curb the growth curve after 2026. Something to be aware of, to be sure.
However the unique elements of the current AI-buildup/spend, make us believe TER will continue to benefit for at least the next 12-18 months.
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Disclosure: We are long TER stock and calls. We may change our positioning at a moment’s notice, without notifying you of any such moves.
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