Teradyne rallies as fund cites strong earnings and AI compute test outlook, but valuation stretches further

What happened

American Century Mid Cap Value Fund highlighted Teradyne as a notable Q3 2025 contributor, with shares advancing sharply after the company delivered robust earnings and an upbeat outlook for its artificial intelligence compute testing business. This response underscores the market’s recognition that AI/HBM and multi‑die packaging are driving structurally higher test intensity, consistent with Teradyne’s strategic focus on SoC, RF, and system‑level test. The strong quarter suggests the semiconductor test recovery is broadening beyond memory into AI accelerator and compute domains, partially offsetting Teradyne’s structural disadvantages in pure memory test. At the same time, the stock was already trading on an elevated ~38x TTM P/E before this rally, implying that the improved AI test narrative is increasingly discounted in the valuation. Robotics softness and ongoing geopolitical/export‑control risks remain key offsets to an otherwise improving fundamental backdrop in Semiconductor Test.

Implication

For investors, the fund’s commentary and share price reaction reinforce that Teradyne is successfully monetizing AI compute and advanced packaging test demand, supporting the core long‑term growth thesis around rising test intensity. The stronger earnings and outlook are incremental positives for Semi Test order momentum and suggest the cycle may be broadening beyond memory into areas where Teradyne is competitively stronger. However, with the stock already expensive at ~38x TTM P/E pre‑move and now higher after a sharp rally, much of this AI‑driven upside appears increasingly embedded in the price, leaving less margin of safety. Positioning should therefore emphasize risk management—maintaining exposure sized to long‑term AI tailwinds while avoiding aggressive add‑ons until either valuation normalizes or earnings power steps up further. Investors should also continue to monitor evidence of sustained SoC/system‑level and RF order strength, progress in Robotics recovery, and any changes in export‑control policy that could reintroduce volatility to the story.

Thesis delta

The new information positively updates the thesis by providing external confirmation that Teradyne’s AI compute testing business is driving robust earnings and is being rewarded by the market, increasing confidence in the secular AI test narrative and in Semi Test order momentum. This reduces execution risk around the anticipated “second‑leg” recovery in SoC/system‑level test, suggesting the fundamental inflection may be underway rather than merely theoretical. Nonetheless, because the share price has already moved sharply higher on this news from an already elevated multiple, the risk/reward skew remains balanced in our view, so the rating bias stays at HOLD/NEUTRAL rather than shifting to BUY.