FormFactor Q2: Record Results Confirm Margin Step-Up, But Valuation Keeps WAIT Rating

What happened

FormFactor delivered record fiscal second-quarter revenue, gross profit, and earnings, validating strong demand in DRAM and Foundry & Logic and meeting its aggressive gross margin guidance. The company cited continued HBM probe-card strength and broad AI infrastructure test demand, but the Systems segment remains in transition. Tariff and restructuring costs are still present, though the margin improvement shows management executing through these headwinds. While the print de-risks near-term earnings and supports the demand narrative, the stock’s valuation continues to embed flawless operational execution and a smooth HBM4 ramp. The Texas factory ramp and Systems turnaround remain critical to unlock further margin upside and justify a higher rating.

Implication

FormFactor’s record Q2 results confirm the guided gross margin step-up and robust AI-related probe-card demand, lowering the probability of a near-term earnings miss. However, the stock trades at a steep multiple that already discounts sustained high growth and margin expansion. The investment case still hinges on the Texas factory production start in late FQ4’26 and a recovery in the Systems segment, which remain unproven. Until those catalysts materialize, the WAIT rating is maintained, with an attractive entry below $110 to build a margin of safety. Positive signals on HBM4 volume qualification would add conviction, but the current price leaves little room for execution missteps.

Thesis delta

Q2 results delivered record revenue and gross profit, confirming the guided margin step-up and de-risking near-term execution. However, the stock’s valuation still assumes flawless operational execution, and the Texas ramp and Systems segment turnaround are required for a rating upgrade. No change to the WAIT rating or price targets.