Shares of Teradyne (TER 19.41%) plunged 19.4% on Wednesday, after the company reported first-quarter earnings last night.
Even though the company saw an incredible 87% growth rate in the first quarter, investors appeared to take profits after outsize gains at the start of 2026.
Still, was the pullback an overreaction for this essential chip testing company?
NASDAQ: TER
Key Data Points
Teradyne crushes the quarter but guides softer than expected
In the first quarter, Teradyne saw revenue rise 86.6% to $1.28 billion, while adjusted (non-GAAP) earnings per share surged 241% to $2.75. Both figures handily beat analyst expectations.
Teradyne's equipment tests chips at almost every stage of the manufacturing process, from wafers to dies to packages to printed circuit boards and beyond. Teradyne also has a small robotics division that accounts for only 7% of revenues today, but could become a growth engine if robotics bulls like Elon Musk are correct about the future growth of AI-driven robotics. So, it's no wonder its results are booming, driven by the step-change in demand for silicon spurred by the advent of generative AI.
So, what exactly was the problem? Well, Teradyne stock had entered the day having already basically doubled this year. Even after today's plunge, the stock is still up 58% for the first four months of the year, which isn't too shabby at all.
Second, the company guided for a quarter-over-quarter dip, along with a 2.5 percentage-point decline in gross margins. Management elaborated on the conference call that customer concentration, as well as the timing of fab build-outs, can make revenue very lumpy from quarter to quarter. Moreover, management said it expected lower second-half revenue than in the first half, due to the outsize orders in the first quarter.
Image source: Getty Images.
Teradyne's long-term seems bright, but the stock isn't cheap
Despite the quarter-by-quarter lumpiness, Teradyne's growth seems an inevitability, driven by the massive acceleration in semiconductor demand. That should lead to increased orders for testing equipment over the coming years, along with a potential high-upside "option" in the robotics business.
Still, even after today's big dip, Teradyne shares trade at a lofty 45 times this year's earnings estimates. So, while the stock is certainly cheaper than it was yesterday, it's still not a bargain.
