FormFactor Hits New Heights, But the Real Test Is Ahead

Record Q2 results and a raised outlook set the stage for Farmers Branch — but a DRAM mix shift and a stock drawdown add caution.

FORM · Earnings Call · 2026-07-29

A Record Quarter at an Inflection Point

FormFactor's second quarter was a blowout: revenue of $258.2M, non-GAAP gross margin of 53.3%, and EPS of $0.82, all records. CEO Mike Slessor summed it up: “FormFactor's second quarter revenue, gross profit and earnings per share set all time records.” — Michael D. Slessor, Chief Executive Officer (CEO) · 2026-07-29 The company surpassed a $1 billion annual revenue run rate and crossed the 50% gross margin threshold for the first time. But the more important story is what lies ahead. The company introduced a new target model at its May investor day: double revenue to $1.6 billion, improve gross margin to 55%, and more than double EPS to $5 by 2030. That would require a step-change in manufacturing capacity, which is why Farmers Branch is the linchpin.

The Growth Engines: HBM, CPO, and Custom Silicon

The quarter's strength was broad-based. DRAM probe cards set another record, with HBM comprising about two-thirds of DRAM revenue. The company's SmartMatrix technology is winning at high-speed stack die test for HBM4, and a second customer is ramping. Meanwhile, foundry and logic demand rebounded on data center CPU and networking strength. The most exciting development, however, is CPO revenue. The company now expects to exceed $20 million for the year, a significant raise from the $10-20M range guided at the start of the year. As Slessor put it: “We are seeing some significant acceleration in this business... we expect to exceed that range by the end of the third quarter.” — Michael D. Slessor, Chief Executive Officer (CEO) · 2026-07-29 CPO is still early innings but represents a decade-long first-mover advantage in silicon photonics testing.

The Capacity Conundrum

To sustain this growth, FormFactor needs more fab space. The new target model hinges on the timely ramp of Farmers Branch, which is on track to start production at the end of 2026 and ramp through 2027-28. CFO Aric McKinnis noted the baseline gross margin is now around 51% at current volumes and mix, before one-time gains. “The recurring or sustainable element of gross margins, we believe, is more like 51% at the current volumes and mix.” — Aric McKinnis, Chief Financial Officer (CFO) · 2026-07-29 But there are headwinds: the DRAM mix is shifting from HBM to DDR in Q3 as customers chase better margins in a constrained supply environment. That could pressure near-term gross margins. Additionally, tariffs and preproduction ramp costs are incremental drags. The company expects Farmers Branch to be accretive to gross margin upon full ramp, but the journey will be bumpy.

We delivered our third consecutive quarterly revenue record. And drove additional non GAAP gross margin expansion to 53.3%. Demonstrating significant operating leverage.
Aric McKinnis, Chief Financial Officer (CFO) · 2026-07-29

Market Context and Valuation

Despite the strong fundamentals, the stock has pulled back ~29% from its June peak, including a -7.8% decline over the last 90 days. This may reflect profit-taking after a massive run, but also concerns about mix and capacity execution. On a valuation basis, FormFactor trades at ~9x trailing revenue, a premium that assumes the target model is achieved. The company's trajectory is a test of whether it can convert a cyclical AI boom into durable structural growth. The record results are a strong vote of confidence, but the real question is whether advanced MEMS probe adoption (and the capacity to deliver) can keep up with demand.

What Changed?

What's new this quarter is the confidence in CPO and the explicit path to the target model. Earlier guidance was more conservative. In April, Slessor said: “We're now investing and preparing the capacity and local support for that.” — Mike Slessor, Chief Executive Officer · 2026-04-29 That described GPU qualification; now we see the ramp is real. The DRAM mix shift is also a new nuance, reflecting the dynamic supply environment. Another change is the gross margin baseline itself. The company now sees ~51% as sustainable, up from the 47% target model. That is a significant upgrade. The fundamentals data, while slightly stale, supports the trend: Revenue has grown 196% over the past decade. In sum, FormFactor is executing well on multiple fronts, but the stock's drawdown suggests investors want proof of the capacity story. The next few quarters will be critical.