Terradyne Stock: Uncovering the AI's Hidden Potential
Teradyne, famed for its automated test systems and robotics solutions, could benefit big-time from the generative AI trend. The stock has been on a rollercoaster since early 2024, recording a 24% gain, just nudging past the S&P 500's 22% growth. Attention seekers might also be intrigued by What's Going On with AMD Stock?
AI's Favor to Teradyne
So, what's cooking up for Teradyne's stock? AI workloads crave massive computational power, demanding high memory capacity and sophisticated manufacturing processes. AI chips sprout complex architectures, requiring superior integration. Guess who's making the tools to test these? That's right, Teradyne's Automated Test Equipment (ATE). ATE plays a vital role in enhancing production yield and boosting chip performance, guaranteeing they meet design specifications.
Teradyne is flaunting strong demand for their ATEs, driven by Cloud AI products, and the memory segment of their semiconductor business is reveling in the strongest growth. Last quarter saw sales surge about 60% compared to the previous year, primarily due to the booming desire for high-bandwidth memory used in AI applications. Teradyne also sees the compute space gaining momentum, projecting 2024 revenue from this segment to be approximately four times that of 2023. The company is stretching its serviceable addressable market forecast in the compute space to a whopping $1.8 billion in 2024, signaling a 30% growth compared to 2023.
Moreover, test times are on the up due to device complexity. Teradyne expects this to create significant opportunities for its system-level test solutions in the AI accelerators space. For the curious ones, check out Can a New Fab Process Boost Intel Stock?
Is Teradyne Luring Investors?
The stock's price journey since the last 4 years has been anything but smooth, featuring unpredictable annual returns. Returns soared at 37% in 2021, plummeted at -46% in 2022, rallied at 25% in 2023, and danced at 17% in 2024. The Trefis High Quality (HQ) Portfolio, comprising 30 stocks, has been more stable and outperformed the S&P 500 throughout this period. Why the contrast? These HQ Portfolio stocks offered better returns with minimal risk, providing an smoother ride, demonstrable in their HQ Portfolio performance metrics.
While the semiconductor business is pace-setting, other sectors have varied, impacting overall growth negatively. The Robotics segment faces lower demand, especially in Europe, where automotive and manufacturing companies are chillin' on investments. The wireless business, too, has hit headwinds due to the sluggish adoption of Wi-Fi 7 devices. Overall revenues are expected to grow at only about 5% in 2024. However, things might turn rosy for Teradyne in the near-to-medium term.
Spending on 300mm semiconductor fab equipment is projected to increase by 4% to $99.3 billion in 2024, with a boost of 24% to $123.2 billion in 2025, reported by SEMI. The AI chip demand should help propel Teradyne's overall growth, considering its semiconductor test business is its largest, responsible for about 74% of total revenue in Q3 2024. The revenue growth is anticipated to accelerate, with consensus predicting a 20% surge for FY'25.
Considering these factors, we believe Teradyne's stock is reasonably priced at around $134 per share, equating to 32x consensus 2025 earnings.
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In response to the generative AI trend, Teradyne's AI workloads could significantly benefit from its Automated Test Equipment (ATE), contributing to a potential increase in Ter revenue.
Given Teradyne's strong performance in the AI semiconductor space and projected revenue growth, the company's stock continues to attract interest from AI and technology-focused investors, as reflected in its rolling stock price since early 2024.
[AI, Teradyne, Ter revenue]
