1. Teradyne, Inc. (NASDAQ:TER)
Number of Hedge Fund Holders: 34
YTD Return as of August 1: 25%
Approximate Percentage Revenue from AI: 40%
Teradyne, Inc. (NASDAQ:TER) designs, develops, manufactures, and sells automated test systems and robotics products worldwide. In the past few months, investments in advanced semiconductor manufacturing and fabrication have more than tripled, topping $100 billion as manufacturers race to meet the increase in demand for complex chips that are used to run demanding applications for AI products. This has subsequently led to an increase in demand for automated test equipment (ATE), a specialty of Teradyne. ATEs are critical since they bring up AI devices quickly, optimize their yield, and improve silicon performance.
In the second quarter earnings call, Greg Smith, the CEO of Teradyne, Inc. (NASDAQ:TER), explained how Cloud AI products were driving strong demand for ATEs across chip and memory markets. In the first half of 2024, the company was able to exceed the revenue it had made from chipmakers in all of 2023. It also grew the memory business by 30% in the first six months of the year, compared to 2023. Smith, however, cautioned that even though the chip and memory markets remained strong, a meaningful uptick in legacy auto and industrial markets might not occur until 2025.
In its Q4 2023 investor letter, TimesSquare Capital Management, an asset management firm, highlighted a few stocks and Teradyne, Inc. (NASDAQ:TER) was one of them. Here is what the fund said:
“New to the portfolio was Teradyne, Inc. (NASDAQ:TER), which produces testing and measurement equipment for semiconductors and other complex electronic systems. Already a holding in our Mid Cap Growth Strategy, after providing lower-than-expected guidance for the final quarter of its fiscal year Teradyne’s price fell, and its market cap entered the buy range for this strategy. We believed that its chip testing volumes reached a low point and were poised to recover. Since we started buying, Teradyne’s shares rallied 30% for the remainder of the quarter.”
While we acknowledge the potential of Teradyne, Inc. (NASDAQ:TER) as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than NVIDIA Corporation but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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