TER Q2 Deep Dive: AI Compute Drives Outlook Amid Margin Pressures and Robotics Pivot

Semiconductor testing company Teradyne (NASDAQ:TER) met Wall Street’s revenue expectations in Q2 CY2025, but sales fell by 10.7% year on year to $651.8 million. On the other hand, next quarter’s revenue guidance of $740 million was less impressive, coming in 2.3% below analysts’ estimates. Its non-GAAP profit of $0.57 per share was 4.9% above analysts’ consensus estimates.

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StockStory’s Take

Teradyne’s second quarter results were met with a strong positive market reaction, largely attributed to outperformance in its AI compute segment and stable progress across core testing businesses. CEO Greg Smith credited “strength in AI compute” and customer-specific demand in mobile and memory testing as key contributors to the quarter’s outcome. Management also highlighted the successful execution of its product test and robotics strategy, noting that restructuring efforts in robotics resulted in quarter-on-quarter growth, despite persistent industry headwinds. Investments in R&D and targeted acquisitions, such as Quantifi Photonics, further contributed to Teradyne’s evolving business mix.

Looking ahead, management expects AI compute to remain the primary growth driver for Teradyne, particularly in the SOC and memory testing segments. Smith stated, “We are significantly more confident than we were 90 days ago,” pointing to improved visibility and a robust pipeline of new program ramps in AI, memory, and robotics. However, the company is cautious about the timing of shipments and notes that mobile and industrial demand will likely remain muted, with mobile only recovering as next-generation technologies ramp in late 2026. CFO Sanjay Mehta added that while recent investments are beginning to pay off, operating expenses will remain elevated to support ongoing innovation.

Key Insights from Management’s Remarks

Management attributed Q2 performance to rising AI compute demand, memory test wins, and early traction from product test segment expansion. The company also discussed ongoing cost pressures and strategic investments in robotics and photonics.

• AI compute segment momentum: SOC (system-on-chip) testing for AI compute applications drove results above internal expectations, with management noting that “demand is strengthening in AI compute” and that opportunities for Teradyne’s UltraFLEXplus platform are broadening, particularly in areas previously inaccessible to the company.
• HBM memory testing progress: The memory business secured a significant win in HBM4 post-stack singulated die testing, reflecting supplier moves to improve device quality through additional test insertions. Management emphasized this insertion could expand the total market for memory testing equipment in the coming years.
• Product test group expansion: The acquisition of Quantifi Photonics was completed in the quarter, accelerating Teradyne’s entry into silicon photonics test and supporting its ambition to lead in AI compute test solutions. Product test revenues rose year-over-year, and management expects further growth from this segment.
• Robotics restructuring and customer wins: Teradyne reorganized its robotics business, consolidating customer-facing operations and securing a plan-of-record decision from a major customer. While this will not materially impact 2025 revenue, Smith said it “is expected to be a significant growth driver later in 2026.”
• Cost discipline amid investment: R&D and operating expenses remained elevated due to targeted growth initiatives, but CFO Mehta highlighted “disciplined spending controls” and stable sequential OpEx, as well as the ongoing optimization of the company’s cost structure in response to market conditions.

Drivers of Future Performance

Management’s outlook is shaped by surging AI test demand, ongoing product introductions, and persistent margin headwinds from higher costs and muted non-AI markets.

• AI-centric revenue mix shift: Teradyne expects AI compute and memory to account for the majority of semi test revenue in the second half of the year, with UltraFLEXplus system orders increasing due to higher utilization rates at key customers. The company believes these trends will support sequential growth, though the exact timing of shipments remains uncertain.
• Mobile and industrial segment caution: Management forecasts muted mobile demand until late 2026, as next-generation smartphone and semiconductor complexity ramps. Industrial and automotive markets are expected to stabilize at low levels, with only selective areas, such as power semiconductors for data centers, showing strength.
• Margin and cost management challenges: Elevated R&D and operating expenses are expected to persist as Teradyne invests in innovation and capacity, particularly in support of new AI and robotics opportunities. The company anticipates that margins will remain pressured until higher volumes from AI-related segments offset fixed costs.

Catalysts in Upcoming Quarters

In upcoming quarters, the StockStory team will monitor (1) the pace of AI compute and memory testing adoption, especially UltraFLEXplus order flow; (2) the ramp and monetization of robotics programs following recent customer wins and operational restructuring; and (3) progress in integrating Quantifi Photonics and expanding product test revenues. We will also track margin recovery as higher AI-related volumes are realized.

Teradyne currently trades at $111.02, up from $90.61 just before the earnings. At this price, is it a buy or sell? The answer lies in our full research report (it’s free).

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