I bet Oppenheimer is beginning to wish it had dunked its itchy finger in ice water instead of letting it pull the trigger on a downgrade of FormFactor (NASDAQ:FORM). As you may recall, I took the analyst to task last week for downgrading the semiconductor chip-tester on fears that "checks at the Semicon West trade show" were pointing toward the "low end" of management's predicted $40 million to $55 million in revenues.

While Oppenheimer lamented: "We see no buy thesis here," I pointed out that this Motley Fool Hidden Gems recommendation has an immense cash stash and an arguably cheap valuation. That's not one, but two "buy theses." The analyst stuck to its guns -- but with FormFactor's stock surging 7% today, it's looking like a day of digit-induced disappointment for Oppenheimer.

Bad news is good news
Don't get me wrong -- when Oppenheimer gets down on FormFactor, it's got good reason. The company turned in a miserable earnings report three months ago, and did its best to duplicate it yesterday, losing $0.38 per share in the second quarter. It's just that while sales of $52 million did decline 21% year over year, they were nowhere near the low end of guidance, as Oppenheimer had predicted.

So why is FormFactor up today? Chalk it up to the power of diminished expectations. As management continues to remind us, it operates in a "challenging business environment." By all indications, the cost reductions at customers like Intel (NASDAQ:INTC), Infineon (NYSE:IFX), and Spansion (NASDAQ:SPSN), to which Form Factor alluded last quarter, are continuing.

But rather than batten the hatches and ride out the storm, FormFactor is instead "aggressively investing in next generation technologies positioning FormFactor for strong growth into the future." With more than $540 million in cash and marketable securities and virtually no long-term debt weighing down its balance sheet, the company is ideally positioned to make these investments now, when times are bad, in order to steal market share from rivals like Advantest (NYSE:ATE) and Cascade Microtech (NASDAQ:CSCD), and profit when business turns around.

And remember: This is the historically cyclical semiconductor sector we're talking about. A turnaround's bound to happen eventually. The real pity here is that myopic Oppenheimer doesn't seem capable of seeing further out than a fiscal quarter.

FormFactor is a Motley Fool Hidden Gems selection. Try this market-beating publication free for 30 days. Intel is a Motley Fool Inside Value pick.

Fool contributor Rich Smith does not own shares of any company named above. The Motley Fool's disclosure policy enjoys manicures and pedicures.