Teradyne (TER): Revenue +104%, Guide Beat the Street — Then the Stock Erased a 15% Gap

Teradyne, Inc. (TER) Q2 2026 — Teradyne, Inc. (TER), one of the two companies that dominate automated semiconductor test equipment alongside Advantest of Japan, reported Q2 2026 (quarter ended June 28, 2026) after the close on July 28. Revenue was $1.329B, +103.9% YoY from $651.8M and up 3.6% sequentially, exceeding the high end of the company's own guidance and marking a second consecutive quarter of record revenue. GAAP gross margin was 59.8% versus 57.2% a year ago; GAAP income from operations was $437.8M (32.9% margin) versus $90.7M (13.9%); GAAP net income attributable to Teradyne $374.5M, or $2.38 per diluted share versus $0.49; non-GAAP net income $389.0M, or $2.47 per diluted share versus $0.57. Revenue split: Semiconductor Test $1,122M (84% of total), Product Test $107M, Robotics $100M. Management's headline attributed the quarter to record Memory revenue driven by continued strength in DRAM and a resurgence in NAND final test; CEO Greg Smith said all three business groups saw year-on-year market expansion and that a rapid increase in wafer fab equipment investment sets the stage for continued growth in 2027 and beyond. First half 2026: revenue $2.611B versus $1.337B, GAAP diluted EPS $4.91 versus $1.10. Q3 2026 guidance is revenue of $1,200M to $1,300M with GAAP diluted EPS of $1.79 to $2.09 and non-GAAP diluted EPS of $1.85 to $2.15. Balance sheet: cash $349.5M plus marketable securities of $167.6M against zero debt (the $200M of short-term borrowings outstanding at December 31 was repaid, and a $300M revolver draw within the quarter was repaid within the quarter); equity method investment carried at $515.0M. Q2 operating cash flow $469.1M versus $182.1M, capital expenditures $90.7M versus $50.4M, implying free cash flow of about $378M; first-half operating cash flow $734.3M and capex $155.4M for roughly $579M of free cash flow. The quarterly dividend was $0.13 per share. The under-covered numbers: first, non-GAAP operating margin FELL from 37.5% to 33.7% sequentially and non-GAAP operating income declined in absolute dollars from $480.4M to $448.3M on $46.5M MORE revenue, because operating expenses rose $48.9M (S&A +15%, E&D +15%) — a negative sequential incremental margin at record revenue, partly reflecting the MultiLane Test Products joint venture that closed in the quarter and added $142.8M of goodwill and a $36.2M noncontrolling interest. Second, sequential revenue growth has decelerated from +41% to +18% to +3.6%, and the Q3 guide midpoint of $1,250M is DOWN about 6% sequentially with non-GAAP EPS falling 19% from $2.47 to about $2.00. Third, Teradyne repurchased only $74.2M of stock in the first half of 2026 versus $274.9M in the first half of 2025 — a 73% cut while the shares tripled. The stock closed at $90.15 a year ago, reached a $483.84 closing high on June 30, 2026, opened at about $367.90 on July 29 (up nearly 15% on the print) and traded back near $333 by mid-morning, erasing the entire gap. Teradyne just reported the best growth quarter in its modern history and the market refused to pay for it. Q2 2026 (quarter ended June 28): revenue $1.329 billion, up 103.9% year over year and above the high end of the company's own guidance; GAAP gross margin 59.8% versus 57.2%; operating income $437.8 million versus $90.7 million, a 32.9% operating margin against 13.9%; non-GAAP EPS $2.47 versus $0.57 and GAAP EPS $2.38 versus $0.49. Semiconductor Test was $1,122 million of the total, about 84% of the company, driven by record memory revenue on DRAM strength and, in management's own words, a resurgence in NAND final test. September guidance of $1.20 to $1.30 billion of revenue and $1.85 to $2.15 of non-GAAP EPS landed far above a Street sitting near $1.06 billion and $1.55. The stock opened up almost 15% at roughly $368 — and gave the entire gap back within the hour, trading near $333. So why are we not buying? Because of three numbers almost nobody wrote about. First, compare this quarter to LAST quarter instead of last year: non-GAAP operating margin fell from 37.5% to 33.7%, and non-GAAP operating income went DOWN in absolute dollars, from $480.4 million to $448.3 million, on $46 million MORE revenue. The incremental margin on the last dollar of growth was negative. Second, the sequential line: quarter-over-quarter revenue growth ran +41%, then +18%, then +3.6%, and the guide midpoint is minus 6%. Teradyne is not being punished for a bad quarter; it is being repriced for a decelerating one. Third, and loudest: management repurchased just $74 million of stock in the first half of 2026 against $275 million in the first half of 2025 — buybacks cut 73% while the shares tripled. Their own capital allocation is telling you what they think this is worth. The franchise is genuinely excellent — a two-player oligopoly, mission-critical product, near-60% gross margins, zero debt, and AI accelerators and high-bandwidth memory that require more test time per wafer, not less. We grade it an A-minus and we think management has handled the windfall correctly. But memory test is the most violent cycle in semiconductors, and when a NAND final-test resurgence is carrying your record quarter, history says you are nearer the top than the bottom. We run two honest futures on owner earnings — net income plus D&A minus capex, roughly $1.2 billion in 2026. A cyclical path where memory rolls over in 2028 is worth about $156 a share at a 9% discount. A full AI-test secular path, owner earnings nearly tripling to $3.35 billion and holding, is worth about $327. Weighted 55% to the secular case, fair value lands near $250 against roughly $333 today — about 25% below. Note what that means: even our bull case sits BELOW today's price. The market is not paying for a good outcome; it is paying for something better than our best one. Our call: HOLD, 2 out of 5. Wall Street is at Buy — roughly 20 buys, 11 holds, no sells across about 31 analysts — with an average target near $420 and recent raises from UBS to $500, Bank of America to $525, and Susquehanna and Cantor Fitzgerald both to $550. So we differ, and we are more cautious. This is a judgment about price, not about the company. Not financial advice. THE CALL: HOLD (2/5, A REAL BOOM, PRICED AS IF IT NEVER CYCLES — A JUDGMENT ABOUT THE PRICE, NOT THE COMPANY) — base-case value ~$250.00 vs ~$333.00 today. What to watch: what would move us more bullish is the sequential line turning back up — a December-quarter guide above the September quarter with gross margin holding at or above 60%, which would mean this deceleration was a pause rather than a peak and would lift our fair value materially; evidence that AI-accelerator and high-bandwidth-memory test intensity is structurally raising test time per wafer rather than pulling demand forward; and management restarting buybacks in size, since their 73% cut in the first half is currently the loudest signal in the release; the risks that would deepen our caution are the mirror image — a second consecutive sequential decline in the guide, gross margin sliding out of the high fifties, non-GAAP operating margin continuing to fall while revenue sets records, any sign that the resurgence in NAND final test was one-off restocking rather than durable demand, and continued negative incremental margins as operating expenses outgrow revenue Also on YouTube: @ChargedAlpha DISCLAIMER: For informational and educational purposes only. Not financial advice. Do your own research before any investment decision.