Teradyne Shares Are Pricing in Downside, Ignoring Long-Term Upside; Shares Deeply Undervalued

We maintain our $167 fair value estimate for wide-moat Teradyne after it reported upside in third-quarter results and guided in line with our expectations. Teradyne continues to suffer from a worsening chip market. We maintain our expectations for soft semiconductor demand to impact the firm’s revenue through the first half of 2023 and for a meaningful snapback in 2024. While short-term results are poor, we are confident in the durability of demand—even while being pushed out. We view slower orders as reflecting near-term demand weakness and not a departure from chipmakers’ long-term capacity or capital investment plans. Teradyne’s equipment is vital for chip production, particularly for advanced chips that sell into high-end smartphones and computing. We see product ramps in 2023 and 2024 driving a return to growth. Shares rose 6% in early market trading despite low guidance, and we think downcycle risk is already entirely priced in. We see significant upside and view Teradyne’s current valuation as ignoring a chip market rebound at any point in the future.