US PCB giant TTM Technologies, Inc. (TTMI.US) upgraded by analysts: AI business rewrites profit outlook as "cycle-top" threat temporarily lifted

US PCB giant TTM Technologies, Inc. (TTMI.US) reported fiscal third-quarter 2026 results showing quarterly revenue up 60% year-over-year to US$1.2 billion, a record high. On profitability, GAAP net income was US$84.8 million, or diluted EPS of US$0.79; Non-GAAP net income was US$157.8 million, or diluted EPS of US$1.46, up 118% year-over-year and a record high. Gross margin was 24.8% (up 330 basis points year-over-year); operating margin was 17.4% (up 510 basis points year-over-year); adjusted EBITDA margin was 20.1% (up 400 basis points year-over-year). Overall book-to-bill reached 2.1, and total backlog reached a record US$2 billion. On cash flow, operating cash flow was US$154.7 million and free cash flow was US$74.8 million. By business segment, Data Center & Networking revenue grew 115% year-over-year, accounting for 41% of third-quarter total revenue. Among this, demand for M+M products is strong, currently accounting for about 30% of segment revenue, expected to account for 49% of revenue in Q4 and rise to 50% next year. Aerospace & Defense (A&D) revenue grew 21% year-over-year, accounting for 34% of third-quarter total revenue. Book-to-bill was 1.6, with backlog of US$2 billion. Benefiting from increased defense budgets and key program bookings, full-year growth is expected at about 20%. Medical, Industrial & Instrumentation revenue grew 97% year-over-year, accounting for 18% of third-quarter total revenue. Driven by strong demand for automated test equipment, full-year growth is expected at nearly 70%. Automotive revenue grew 11% year-over-year, accounting for 7% of third-quarter total revenue. The company is focused on high-value-added products and expects mid-single-digit full-year sales growth. In addition, the company announced an additional US$400 million investment plan for M+M product capacity expansion; completed the acquisitions of Switch Technology Group and Epic Solutions; and announced the all-cash acquisition of Ophir Optics for US$650 million, continuing its transition toward high-value-added solutions. On guidance, the company expects fourth-quarter revenue of US$1.42 billion to US$1.44 billion; Non-GAAP diluted EPS of US$1.77 to US$1.83. The company also raised its full-year revenue guidance to US$4.47 billion to US$4.49 billion; Non-GAAP diluted EPS of US$4.97 to US$5.03. For 2027, the company preliminarily expects full-year revenue of US$6.5 billion to US$6.75 billion; Non-GAAP diluted EPS of more than US$8.10. Following the latest earnings release, an analyst said that after a significant valuation correction and fundamental improvement, they upgraded TTM Technologies, Inc. from "Sell" to "Buy." Since March, the stock's valuation multiple has halved, and the latest round of selling in particular has made the valuation look attractive, while the company's earnings outlook has instead continued to improve since March. The decline in the valuation multiple looks very much like the state of a cyclical stock nearing a topthat is, the market believes earnings are peaking. But TTM Technologies, Inc.'s backlog, visibility in the defense business, and new capacity being built for 2028 demand all indicate that 2027 is not a cycle top. The analyst noted that the prior "Sell" rating was based on the view that the company's revenue growth outlook was peaking at around 20% while lacking pricing power; and the stock price at the time appeared to have already priced in margin expansion that had not materialized. In fact, third-quarter revenue growth was actually about three times the "peaking at around 20%" rate the analyst had feared, and fourth-quarter guidance is even higher. Margin performance was also better than expected. Pricing concerns also appear to have been resolved better than expected, with N+M product price increases outpacing cost growth. Demand visibility has also improved. The concerns that still hold include only the valuation multiplewhich has now corrected to clearly below the industry median of about 13.55xand weak cash conversion. The latter still exists but is improving. N+M products change the margin calculation logic The analyst previously believed that TTM Technologies, Inc.'s business model was at best overly dependent on passing through rising copper costs to customers, and therefore had little pricing power. But N+M products (TTM Technologies, Inc.'s high-layer-count circuit boards for AI computing) have changed this calculation logic, and third-quarter data already show that its pricing situation is better than the analyst previously thought. Adjusted operating margin rose about 510 basis points year-over-year to about 17.4%, with nearly two-thirds of the increase coming from gross margin rather than operating leverage. N+M products are driving TTM Technologies, Inc.'s margin expansion because each circuit board is about four times more complex than traditional designs. According to management's estimates, the product mix upgrade has also not yet peakedN+M products currently account for about 30% of Data Center and Networking sales, and that proportion could reach about 50% next year. Therefore, the outlook for about 200 basis points of EBITDA margin improvement in 2027 is well supported. Beyond N+M products, the company also has other pricing improvement factors that similarly support the logic of improved pricing power. Medical, Industrial & Instrumentation grew about 97% in the third quarter, partly due to price adjustments. In addition, there are some operational improvements at workfor example, the Penang plant is gradually reaching break-even (the Penang plant is TTM Technologies, Inc.'s facility in Malaysia). Demand visibility has also improved. 90-day backlog more than doubled year-over-year, and there are signs that N+M product growth momentum may continue into 2028. In fact, TTM Technologies, Inc. is investing about US$400 million in new capacity for 2028 based on customer roadmaps and demand visibility. The defense business also further strengthens its position as a stable business pillarbacklog reached a record of about US$2 billion, and about 65% of 2027 defense business revenue already has high visibility. Valuation multiple compressed as if at a cycle top TTM Technologies, Inc.'s forward EV/EBITDA valuation multiple has fallen from about 21.4x to about 10.9x currently. The valuation multiple has nearly halved, while the stock price has fallen only about 16% from start to finishmeaning EBITDA figures have been substantially revised upward during the period. Earnings estimate revision data support this judgmentover the past six months, 2026 EPS estimates have been raised by about 40%, and 2027 estimates by about 66%. Interestingly, this change occurred while the industry median valuation multiple rose only from about 13x in March to about 13.55x currently. This directional mismatch between the broader industry and TTM Technologies, Inc.'s own valuation and fundamental improvement is the opportunity the analyst now sees in issuing a "Buy" rating. And this opportunity largely stems from the larger selloff in the AI trade itself over the past few days. Rising borrowing costs are now a factor, and the AI re-rating phase experienced from March to July has also ended, with no new catalysts at present. The broad impact of a cyclical cooling in AI across the sector may also have put pressure on TTM Technologies, Inc. However, a cycle top does not currently look like an imminent threat. A valuation of about 10.9x is approaching cycle-bottom levels. Historical bottom valuations are roughly between 5x and 10x, while about 10.4x is the average valuation multiple over the past five years, for most of which valuations were at pre-AI-era levels. Even if the cycle-top theory applies to some areas of the AI trade, it clearly does not apply to TTM Technologies, Inc., because the company's demand visibility for 2028 has improved and it is actually building capacity; 2027 revenue is expected to grow about 48%, and adjusted EPS is expected to grow about 70% (calculated using the midpoint of the company's guidance range). Why buy now, and what to watch? The main risk to the analyst's current "Buy" rating comes from the AI business itself. The company expects Data Center business to account for about 49% of fourth-quarter sales, up from about 30% a year earlier. Therefore, although demand and performance data depend on the Data Center business remaining strong, if financing costs rise or AI economics deteriorate and cause hyperscalers to cut capital spending, TTMInow more dependent on the AI business than a year agocould be more affected. To be fair, some timing risks already emerged in the third quarter. One of the three N+M projects was delayed, and Data Center sales were about 10% below prior guidance. The current valuation somewhat mitigates these risks, as the valuation is moving toward pre-2025 levels, but this remains a general risk that needs continued monitoring. Cash conversion has improved from March but is still not strong enoughyear-to-date free cash flow is only about 7% of adjusted EBITDA. Accounts receivable grew about 72% year-over-year, even faster than revenue itself, which grew about 60% year-over-year. Capital expenditure is also front-loaded, with N+M capacity for 2028 currently being built. On the positive side, the cash conversion trend is improving. In the third quarter alone, the conversion of adjusted EBITDA into free cash flow reached about 31% (EBITDA of about US$242.3 million and free cash flow of about US$74.8 million). Management also believes that 2027 free cash flow should be sufficient to cover increasing capital expenditure while still retaining residual cash to begin repaying debt. Therefore, this risk is mitigated. What needs attention is whether operating cash flow can recover to the high-teens percentage of revenue as the roughly US$650 million Ophir Optics deal adds revolver debt and increases quarterly interest costs by about US$20 million. Overall, the current "Buy" rating is largely valuation-driven, while fundamentals show no sign of peaking and no major risks that have not yet been mitigated. From current levels, returns could also be driven simply by earnings growth, especially given that 2028 demand still looks very solid.