$41.11
$92.20
bear $41.11
base $66.22
bull $92.20
margin of safety $30.00
market price* $325.00
Teradyne makes the automatic test equipment that chipmakers and their subcontractors use to check that semiconductors work before they ship, plus test systems for defense, aerospace, storage and photonic devices (Product Test) and collaborative robot arms and mobile robots (Universal Robots and MiR). Semiconductor Test is about four-fifths of revenue, and it is a near-duopoly with Advantest in system-on-chip and memory test. The business is highly cyclical: customers acquire testers when chip volumes or new chip designs are ramping and stop abruptly when they are not. In 2025, demand tied to artificial-intelligence chips - networking chips, custom compute processors built for large cloud operators, and high-bandwidth memory - drove most second-half revenue, while Robotics revenue fell 15.5% and the segment was restructured. Earnings power. We measure owner earnings as operating cash flow with working-capital swings removed, less stock-based compensation (treated as a real cost) and less the capital spending needed to maintain the business; spending that matched revenue growth was treated as growth investment. On that basis Teradyne earned $1.46 per share in 2016, $1.61 in 2017, $2.56 in 2018, $2.61 in 2019, $4.12 in 2020, $5.73 at the 2021 peak, $3.76 in 2022, $2.30 at the 2023 trough, $2.73 in 2024 and $3.00 in 2025. Interest has been negligible (the convertible notes were retired by 2022), so cash before lenders is essentially the same. We set the normal level at $3.02 per share, the median of 2019-2025, which covers one full cycle: the 2019 lull, the 2020-21 boom, the 2023 bust and the 2024-25 recovery. Earlier years are left out because the business was smaller and the 2016 figures were distorted by large write-offs of the wireless test business. Acquired-intangible amortization is small (about $15 million a year), so no wasting asset needed special treatment. What changed. The first half of 2026 was extraordinary: revenue of $2.61 billion against $1.34 billion a year earlier, net income of $773 million against $177 million, and operating cash flow of $734 million against $344 million. We estimate first-half owner earnings at roughly $4.70 per share, an annualized pace about three times the 2025 level. 2025 owner earnings grew about 10%; our base case assumes the twelve months to mid-2027 deliver $7.00 per share, which is far above that trailing rate. The reason is the reported first-half 2026 results, not an outlook. We still treat this as a cyclical peak rather than a new normal, because the 2020-21 boom was followed by a 60% fall in owner earnings and a 28% fall in revenue by 2023. We did not credit long-run growth from rising chip complexity or AI demand in the normal level. That growth depends on the market expanding, and it is not secured by contracts or backlog we can see. We also did not credit the share buybacks, which are funded from the same cash we are valuing. Base case ($66 per share): owner cash of $7.00 per share in the next twelve months, $4.50 the year after as orders cool, a trough year of $2.60 (the 2023 pattern) and $3.00 in the following year, then the normal $3.02 indefinitely. A level business with no assumed growth is held up by Teradyne's 60-year position as one of two global suppliers of high-end chip testers and by an engineering and development budget of several hundred million dollars a year (up $43.7 million in 2025) that has kept it there through every cycle. The business is worth about $8.7 billion ($55.04 per share). Teradyne had no borrowings at June 28, 2026 (the $200 million revolver draw at the end of 2025 was repaid). We add $300 million of cash and marketable securities beyond operating needs (of $450 million held) and value the roughly 10% stake in Technoprobe, the Italian probe-card maker, at $1.5 billion, between its $515 million carrying value and its $2.46 billion quoted value at June 28, 2026, because that quoted value reflects the same AI upswing. We subtract $36 million for MultiLane's 25% share of the new MLTP joint venture. Net assets outside the business add about $1.76 billion ($11.19 per share), giving $66.22. Bear case ($41 per share): the AI spending wave turns quickly. The next twelve months bring $5.00 per share, then a downturn deeper than 2023 and closer to 2009, when Teradyne's revenue fell by about a quarter and it lost money: $2.00, $1.00, $1.50 and $2.00 per share over the next four years. After that the normal level settles 30% lower at $2.10 per share, about the 2023 trough. That reflects the concentration disclosed in the 2025 annual report: one direct customer took 19% of revenue and two device makers specified another 12% and 10%, so losing a customer or a design to Advantest would cut the base. About 14% of 2025 revenue was booked in China, which adds export-control risk. The business is worth about $5.7 billion ($36.17 per share). There is no debt. With excess cash and the Technoprobe stake at its $515 million carrying value, less the joint-venture partner's share, net assets add $4.94 per share, giving $41.11. Bull case ($92 per share): AI test demand lasts longer, with $9.00 per share in the next twelve months and $7.50 the year after, easing to $5.00, $3.50 and $4.00. The normal level then steps up to $4.00, because the 2025-26 shift toward AI compute and high-bandwidth memory test, where Teradyne gained share, leaves a larger installed base and more test time per chip. The business is worth about $11.8 billion ($74.94 per share). With the Technoprobe stake at its June 2026 quoted value of $2.46 billion and the same cash, net assets add $17.26 per share, giving $92.20. Margin-of-safety price. We are fairly sure of the normal level: ten years of cash flow through two full cycles put it around $3 per share. We are much less sure of the timing and size of the current boom. The worst plausible outcome is an abrupt end to AI accelerator spending at the same time as the loss of a large compute customer. Teradyne would survive it: it has no debt, holds about $450 million of cash and securities plus a listed stake worth at least its carrying value, and remained cash-generative even at the 2023 trough. The things we are most likely to be wrong about are how long the boom lasts, whether the normal level holds at $3 or slips toward $2, and what the Technoprobe stake is really worth. If all three go against us, the shares are worth roughly $41. The price assumes a three-year holding period, and the dividend is only about $0.48 per share a year. From $30 per share, the base-case cash over three years (about $14 per share) followed by an exit at no better than the bear-case value implies roughly 22% a year. The full bear case implies close to 18% a year, and the base case implies well above the target. That margin of safety against a deep chip-equipment downturn is why the margin-of-safety price is $30. Data notes: the working-capital figures come from the company's own liquidity discussion. A detailed first-half 2026 cash-flow breakdown was not available in full, so the first-half owner-earnings estimate is approximate. Our previous figures were prepared on a different basis and are not comparable.