Teradyne's transformation from a legacy smartphone chip tester into a critical supplier of artificial-intelligence chip testing equipment is winning over Jefferies.
The firm initiated coverage of Teradyne with a Buy rating and $284 price target on Wednesday.
Shares of Teradyne, a semiconductor test equipment manufacturer, advanced 11% to $271.70 in Wednesday trading alongside a broader tech rally, buoyed by CoreWeave's strong earnings that helped ease worries over AI companies' debt burdens. All three major indexes were rising during the session.
The bullish call offered welcome relief to a stock that has been battered over the past few months. The bullish call offered welcome relief to a stock that has been battered over the past few months, weighed down by a broader tech pullback as investors questioned soaring infrastructure costs and the timeline for payoffs on massive AI investments.
Yet Jefferies sees this share drop as an attractive entry point as Teradyne emerges as an AI powerhouse. The proof was in the numbers: AI-driven revenue accounted for over 60% of the company's revenue in the third quarter of 2026, which ended Sept. 27.
The reason comes down to how these modern AI chips are built, with several miniature components bundled together into one package.
Because the finished product is so expensive, a single hidden defect could ruin the whole thing, Jefferies analysts wrote. That forces chip makers to test each component more thoroughly, driving massive demand for Teradyne's equipment.
Teradyne's relationship with Nvidia as a second-source supplier could represent another tailwind, Jefferies said. Major chip makers, including Nvidia, have been diversifying away from relying on a single test supplier. The firm thinks Teradyne's business with the chip giant in particular could expand from generating $50 million in 2026 to over $2 billion by late 2029, capturing around 30% of Nvidia's test equipment spend.
Jefferies also forecasts Teradyne will generate total revenue of $6.7 billion in 2027 and $8.5 billion in 2028, outpacing Wall Street's estimates of $6.5 billion and $8 billion, respectively.
While volatility across the tech sector has shaken up the AI trade, Wall Street's confidence in Teradyne has remained intact. After all, shares have risen about 27% this year as of the closing bell Tuesday.
Of the 21 analysts covering Teradyne, 16 recommend buying shares while five have a Hold rating, according to FactSet data.