Japanese semiconductor testing giant Advantest has raised its outlook above expectations, driven by strong demand for testing equipment needed to manufacture increasingly complex chips for AI data centers.

The equipment supplier, which detects defects in Nvidia chips, now forecasts operating profit will increase 70% for the fiscal year ending next March, up from a previously predicted 26% rise. Analysts had average estimates of 42% growth. In the quarter ending June, the Tokyo-based company reported operating profit jumped 53% to 190 billion yen (approximately $12 billion), surpassing analyst expectations of 28% growth. Revenue also rose 39%, beating estimates.

Key factors behind the shift

Market demand for Advantest's testing equipment is surging as semiconductor manufacturers seek to reduce defect rates in advanced logic and memory chips required for AI data centers. Company executives had previously predicted this investment boom would continue for at least several more years.

Market reaction and outlook

Kazuyoshi Saito, senior analyst at Iwai Cosmo Securities, noted: "The adjustment to earnings forecasts far exceeded expectations, leaving a very positive impression on the market. Although AI-related stocks have not been popular recently, I believe this could serve as a catalyst to reverse the situation and help clear some of the pessimism hanging over the sector."

Since hitting an all-time high in June, Advantest's stock price has fallen approximately 30%. Year-to-date, the shares are up about 28%.