Teradyne's third-quarter earnings call highlighted AI demand and its 2027 growth plans.

Teradyne, Inc. (TER) emphasized sustained artificial intelligence (AI) demand and expanding semiconductor test opportunities during its third-quarter 2026 earnings call. Management expects further growth in 2027, supported by memory demand, compute programs and capacity expansion.

Executives also addressed customer ramp schedules, supply-chain constraints and the timing of emerging opportunities in advanced networking and robotics.

Third-quarter non-GAAP earnings of $2.29 per share exceeded the Zacks Consensus Estimate of $2.04. Revenues of $1.31 billion surpassed the consensus estimate of $1.27 billion. Turner also expects sequential revenue growth entering 2027, while acknowledging potential shipment-timing variability.

President and CEO Gregory Smith said that AI-related revenues exceeded 60% of total sales, reflecting demand across semiconductor testing, electronics infrastructure and robotics. Smith highlighted expanding semiconductor capital spending and increasing test requirements. Test equipment's share of semiconductor capital expenditures rose from 6.4% in 2025 to 8.1% during the first eight months of 2026.

Management expects continued expansion in automated test equipment demand as semiconductor manufacturers increase capacity. However, customer adoption schedules remain important to Teradyne's growth trajectory.

Smith emphasized progress with hyperscaler customers adopting dual-vendor testing strategies. One hyperscaler has reached mature deployment, with another significant ramp expected around mid-2027. A second hyperscaler has completed qualification and could begin capacity purchases during the second half of 2027. Teradyne also has a third hyperscaler undergoing initial qualification.

During questions from UBS, Smith acknowledged that custom-chip programs would be weighted toward the second half of 2027. He added that UltraFLEXplus manufacturing capacity has quadrupled over approximately 18 months, with another expansion being planned.

Memory testing remained a central growth driver, with quarterly revenue reaching a record $301 million. Strong demand for high-bandwidth memory (HBM), DRAM and recovering NAND supported performance. Responding to Cantor Fitzgerald, Smith identified HBM as the largest expected contributor to memory market growth in 2027, alongside expansion across other memory categories.

Smith also explained that customers shifting toward lower HBM stack heights could increase demand for performance testing. More individual stacks produced from the same wafer capacity would require additional testing, benefiting an area where Teradyne holds relatively higher market share.

Product Test revenues reached $138 million, increasing 56% year over year. CFO Michelle Turner highlighted a 1.4-times book-to-bill ratio, supported by demand for high-speed interconnect testing.

Robotics generated $96 million in revenues, increasing 28% year over year, and achieved quarterly profitability. Smith identified electronics and semiconductor manufacturing as the segment's largest industry vertical. In response to Susquehanna, Smith cautioned that broader physical AI adoption requires development and deployment time. He expects increased laboratory activity during 2027, while more substantial end-market adoption could emerge in 2028.

Teradyne expects fourth-quarter revenues between $1.25 billion and $1.35 billion, with non-GAAP earnings of $1.95 to $2.25 per share. The revenue midpoint implies approximately 20% year-over-year growth.

Turner forecast gross margins of 57.5% to 58.5%, reflecting product mix and new product introductions. During Q&A, she identified supply-cost inflation and potential capacity expansion as considerations for 2027 profitability.

Management's overall message emphasized investment in production capacity, product development and partnerships to address expanding AI infrastructure requirements. Smith remained confident about medium-term opportunities while recognizing that compute customer ramps, optical networking adoption and physical AI deployment will progress at different rates. Turner highlighted stronger backlog visibility and said management plans to update its longer-term earnings model during the next quarterly earnings call.

Teradyne currently carries a Zacks Rank #2 (Buy), alongside a Momentum Score of A, Growth Score of B, Value Score of D and VGM Score of B.

The favorable Momentum and Growth Scores indicate stronger characteristics in those investment styles, while the weaker Value Score reflects less attractive valuation characteristics. The VGM Score combines value, growth and momentum factors, complementing the favorable Zacks Rank. However, the Zacks Rank can change as analysts revise earnings estimates following the latest results.

This article originally published on Zacks Investment Research (zacks.com).