Story Stocks^®

Teradyne (TER +20%) is trading sharply higher today after reporting its Q2 results last night. This manufacturer of test equipment and robotic systems for chip companies reported EPS and revenue upside. That said, the EPS beat was its most narrow in a 5-year span, and revenue declined yr/yr for the first time in 4 quarters. Investors are likely responding more to the bullish commentary from management on this morning's Q2 call, with management noting a strengthening 2H25 extending into FY26.

• TER generates revenue through three main segments: Semiconductor Test, Robotics, and Product Test. Its ST group was the star of the show, contributing 75% of total revenue. System-on-a-Chip (SOC) was particularly strong for AI applications, driving results above management's expectations.
• In addition, TER noted that demand is strengthening for AI compute and is seeing a broadening of opportunities where it is getting consideration in areas where it has not historically had "a seat at the table."
• Importantly, management noted that visibility is starting to improve in terms of capacity utilization, as utilization rates have improved considerably. This resulted in an increase to its UltraFLEXplus system orders, and management believes they have turned a corner towards more new system sales rather than selling upgrades of existing idle mobile capacity.
• Its Robotics segment, which was recently restructured, delivered 9% sequential growth despite persistent challenges in the market. It secured a plan-of-record decision from a large customer in Q2. While it is not expected to have a material impact on Robotics revenue in FY25, it is anticipated to be a significant growth driver in FY26. As a result, TER plans to open a manufacturing operation in the US to support this opportunity and others.

While the results this quarter were solid, we believe the stock's outsized move today is being driven more by the particularly bullish tone on the call as well as willingness to be bullish a few quarters out. The increase in AI compute demand and the shift toward new system sales over upgrades suggest a willingness by customers to spend more. While its larger ST segment is positioned for a strong Q3, investors are also pleased to see its Robotics segment, which has not yet turned a profit, gain traction from large customers.