Teradyne's (TER) results reflect an "expectations issue" rather than a miss, as investor optimism around AI networking and related test opportunities needs to be tempered, even as Silicon Photonics/Co-Packaged Optics TAM grows to $300-700 million over the medium term, Morgan Stanley said in a Thursday note.

However, the brokerage said networking expectations will need to be tempered, adding that Teradyne's comment that market share is balanced with competitor Advantest was "discouraging," particularly as networking has historically been a stronghold for the company.

Morgan Stanley also flagged caution on the Nvidia (NVDA) GPU opportunity, noting that while Teradyne has secured initial production test orders, the longer-term scale and share gains remain uncertain and are not fully reflected in investor expectations.

Teradyne revised its revenue outlook to reflect a slightly more back-half weighted profile for 2026, with full-year revenue now expected at $4.14 billion to $4.51 billion. The low end reflects potential hiccups in AI data center build-out, while the high end assumes continued strength across compute, networking and memory demand.

Morgan Stanley raised its 2026 revenue and earnings per share estimates to $4.75 billion and $8.03 from $4.73 billion and $7.25. It also lifted its 2027 estimates to $6.30 billion in revenue and $11.37 in EPS from $6.30 billion and $11.05.

The firm lifted its price target on the stock to $387 from $376 and kept its equalweight rating.

Shares of Teradyne were up more than 14% in Thursday trading.

Price: 350.14, Change: +43.81, Percent Change: +14.30