CK Capital
Defense/Space/Tech/Photonics Investor, Co-Owner of CV Research
FormFactor sits in test and packaging, the best corner of semiconductors this year, where much quiet money is being made in the layer that makes compute functional. It makes the probe cards that test chips and ranks first globally in test subsystems. Last quarter set a revenue record, up 32%, with gross margin up 510 basis points to 49% and EPS beating by 33%. DRAM probe card revenue hit a record on HBM, a product sold out through 2030. x.comÂ
FormFactor is rated Buy amid the AI sector crash because it is important for HBM, advanced packaging and CPO, where its testing raises yields. Foundry test intensity is only set to increase as production grows. x.comÂ
FormFactor could see probe-card orders ahead of KYEC's new test floor because cards are built for each chip design. Nvidia plans to double chip-test capacity from 2026 to 2027 and is advancing $1.1bn to KYEC for US facilities targeting volume production in April 2027. Orders could land between now and early 2027; FormFactor's Oct 28 call is the first chance to hear whether they have started. x.com x.com x.comÂ
FormFactor is expensive against its earnings, trading at about 38x when chip-equipment makers usually get 18x. Fair value sits at $60.06 to $76.44, or 18x next year's $3.79 EPS give or take 12%, so at $145.97 the price is about 91% above fair. The valuation also leans on the forecast, with forward EPS 177% above trailing. This is a levels-only read off reported earnings and revenue estimates, with no fundamental work. x.comÂ
FormFactor's production-ready wafer-level CPO probe gives it a test opportunity at a major foundry, but that business depends on one customer. CEO Mike Slessor says the CPO piece flows through a foundry worth 10% of sales; he did not name it, though an analyst named TSMC. Triton tests photonic wafers before stacking; post-stack test remains difficult. FormFactor expects CPO test revenue to significantly exceed $20m this year and estimates a $400m market by 2030. x.comÂ
FormFactor is evolving from an HBM probe-card play into a broader AI test platform as Nvidia emerges as a new logic-test market. Per Deutsche Bank, becoming a second source for Nvidia GPU probe cards at TSMC could reach $200M+ revenue by 2028, alongside about $400M of HBM revenue and a roughly $200M custom ASIC opportunity. Micron's print shows HBM demand exceeding supply, and taller, denser stacks make wafer-level testing more valuable. Valuation is the main risk after a 274% one-year rise. … Show more
FormFactor's 2030 target model implies either a still-high multiple in 2030 or disappointing share-price gains over the next few years. The model, cited via Citi and apparently management's own, targets $1.6B revenue, 55% gross margin and $5 EPS. The modeled TAM may prove higher, but a margin of safety means assuming today's high multiple won't stay as high. x.com x.com x.com x.comÂ
FormFactor's rebounding free cash flow and operating margins suggest it is making the right moves in the tough, competitive chip-testing segment. Against ASML, the segment's beast, FormFactor has better growth and a 40% lower PEG. The chart is ready to move again, with a pattern target of 143 versus an all-time high around 160. x.com x.comÂ
FormFactor's role as a chip-test supplier to Nvidia underpins the case, and the chart recently formed a double bottom at the 200-day moving average. x.comÂ
FormFactor is breaking out on record fundamentals. It posted three straight revenue records, a run rate above $1B and gross margin above 50% for the first time, and the shares rose 15% on the week. x.comÂ
Chip testing may be the new memory: a thinly occupied, high-moat niche unknown to most investors. With far more chips everywhere, including GPUs and HBM, they cannot be installed without robust testing, which favors names such as Camtek, Aehr Test Systems, Teradyne and FormFactor. Higher valuations and slower earnings growth are no objection, since memory also looked that way many hundreds of percent ago. x.com x.com x.com x.comÂ
