J.P. Morgan: Teradyne computing projects delayed as other testing businesses take up growth

Which businesses offset the drag from computing projects in the third quarter?

Teradyne’s third-quarter revenue was 1.306 billion dollars, above JPMorgan’s estimate of 1.25 billion dollars and the market consensus of 1.269 billion dollars. Adjusted earnings per share were 2.29 dollars, also above their respective estimates of 2.00 dollars and 2.09 dollars.
SoC test revenue fell 20% sequentially due to the timing of computing projects, but memory test and industrial system test (IST) revenue each rose 42% sequentially. As a result, overall semiconductor test revenue fell only 4% sequentially, less than the 8% decline expected by both the market consensus and JPMorgan.
Product test revenue was 138 million dollars, above the market consensus of 117 million dollars. Management said AI infrastructure demand was broad across production board, optical and high-speed interconnect testing, with a book-to-bill ratio of 1.4.

Management attributed the delay in computing project timing to customers’ chip tape-out schedules, rather than internal or competitive factors. The company expects the next major ramp at the first large cloud customer in mid-2027, and the second to purchase capacity in the second half of 2027.
The pace of share gains at the second customer is expected to fall between two paths: share in a commercial GPU project is in the single digits this year and could rise to 30% in the future; share at the first large cloud customer rose from zero to above 70% in two years. A third large cloud customer has entered preliminary qualification, but reaching the scale of the first two could take several years.
JPMorgan expects non-computing semiconductor testing, including memory, hard drives, automotive and industrial applications, as well as product testing, to drive year-on-year revenue growth in the first half of 2027 and support sequential growth in every quarter of the year.

The company’s fourth-quarter revenue guidance is 1.25 billion to 1.35 billion dollars, with the midpoint of 1.3 billion dollars above the market consensus of 1.243 billion dollars. The earnings-per-share guidance midpoint of 2.10 dollars is also above the consensus of 2.00 dollars.
The gross margin guidance midpoint is 58.0%, down 1.1 percentage points from the actual third-quarter figure of 59.1% and slightly below the market consensus of 58.2%. Product mix and new product launches are creating pressure; management believes new products account for most of the decline and that the pressure will gradually ease as products enter high-volume production.

JPMorgan believes the introduction of a second supplier for commercial GPUs, cloud customers’ development of in-house chips, and increasing complexity in high-bandwidth memory testing could all expand demand for Teradyne’s test equipment. The bank forecasts 2027 revenue of 6.34 billion dollars, up 21.5% year on year, and adjusted earnings per share of 11.75 dollars, raised 1.8% from its prior forecast.
However, management indicated that the addressable market for automated test equipment needs to be larger to achieve its target financial model: market growth is concentrated in computing, where the company’s share is relatively low, although it is rising.
JPMorgan maintained its Overweight rating and December 2027 price target of 465 dollars, based on a price-to-earnings multiple of about 30 times its 2028 earnings-per-share forecast.