The Zhitong Finance App learned that the financial report for the third quarter of 2026 released by US PCB giant TTM Technology (TTMI.US) shows that revenue for the quarter increased 60% year over year to 1.2 billion US dollars, a record high. In terms of earnings, GAAP net profit was US$84.8 million, or $0.79 per diluted share; non-GAAP net profit was US$157.8 million, with diluted earnings of US$1.46 per share, an increase of 118% over the previous year, a record high. Gross profit margin 24.8% (up 330 basis points year over year); operating profit margin 17.4% (up 510 basis points year over year); adjusted EBITDA profit margin 20.1% (up 400 basis points year over year). The overall order shipment ratio (book-to-bill) reached 2.1, and the total backlog of orders reached a record $2 billion. In terms of cash flow, operating cash flow was US$154.7 million and free cash flow was US$74.8 million.
By business, data center and network business revenue increased 115% year over year, accounting for 41% of total revenue in the third quarter. Among them, demand for M+M products is strong. Currently, they account for about 30% of this segment's revenue. Q4 is expected to account for 49% of revenue, which will increase to 50% next year. Aerospace and Defense (A&D) business revenue increased 21% year over year, accounting for 34% of total revenue for the third quarter. The order-to-shipment ratio is 1.6, and the backlog of orders is 2 billion US dollars. Benefiting from increased defense budgets and bookings for key projects, it is expected to grow around 20% for the whole year. Revenue from the medical, industrial and instrumentation businesses increased 97% year over year, accounting for 18% of total revenue in the third quarter. Driven by strong demand for automated test equipment, it is expected to grow by nearly 70% throughout the year. Automobile business revenue increased 11% year over year. The company, which accounts for 7% of total revenue in the third quarter, focuses on high value-added products, and is expected to achieve medium single-digit growth in sales throughout the year.
Additionally, the company announced an additional $400 million investment plan to expand production capacity for M+M products; completed the acquisition of Switch Technology Group and Epic Solutions; and announced an all-cash acquisition of Ophir Optics for 650 million US dollars to continue the transition to high value-added solutions.
In terms of performance guidance, the company expects fourth-quarter revenue of $1.42 billion to $1.44 billion; non-GAAP diluted earnings per share of $1.77 to $1.83. The company also raised its full-year revenue guidance to $4.47 billion to $4.49 billion; non-GAAP diluted earnings per share were $4.97 to $5.03. For 2027, the company initially estimates full-year revenue of $6.5 billion to $6.75 billion; non-GAAP diluted earnings per share of over $8.10.
After the latest financial report was released, some analysts said that after the valuation was drastically revised and fundamentals improved, their rating for TTM Technology was raised from “sell” to “buy.” Since March, the stock's valuation ratio has fallen short. In particular, the latest round of sell-off has further made the valuation look attractive, while the company's profit prospects have continued to improve since March. The fall in the valuation multiplier looks a lot like the state of a cyclical stock when it is close to the top — that is, the market believes profits are peaking. However, TTM Technology's backlog of orders, the visibility of the defense business, and the construction of new production capacity in response to 2028 demand all indicate that 2027 is not at the top of the cycle.
Analysts pointed out that the “sell” rating was based on the belief that the company's revenue growth prospects were peaking at about 20% and lacked pricing capacity; moreover, the stock price at the time seemed to have taken into account the expansion of profit margins, but this expansion was not evident.
But in reality, revenue growth in the third quarter was actually about three times the rate analysts feared “peaking at a level close to 20%,” while the fourth quarter's guidance was even higher. Profit margins also performed better than expected. Pricing concerns also appear to have been better addressed than expected, with prices rising faster than N+M products outpacing cost growth. Demand visibility has also improved.
Concerns that remain valid include only the valuation multiplier — which has now been revised to be significantly below the industry median of about 13.55 times — and weak cash conversion capacity. The latter is still there, but it's improving.
N+M products change profit margin calculation logic
Analysts previously believed that TTM Technology's business model relied too much on passing on rising copper costs to customers, so it had little pricing power. However, N+M products (TTM Technology's high-layer digital circuit boards for AI computing) changed this calculation logic, and data for the third quarter already showed that their pricing situation was better than what analysts had previously thought. The adjusted operating margin increased by about 510 basis points year over year to about 17.4%. Nearly two-thirds of the increase came from gross profit margin rather than operating leverage.
N+M products are driving TTM Technology's profit margin expansion because each circuit board is about four times more complex than traditional designs. According to management estimates, the increase in the product portfolio has yet to peak — currently N+M products account for about 30% of data center and network business sales, and this share may reach about 50% next year. Therefore, the outlook for an EBITDA margin increase of around 200 basis points in 2027 is fully supported.
In addition to N+M products, the company also has other pricing improvement factors, which also help support the logic of improving pricing capabilities. The medical, industrial and instrumentation business grew by around 97% in the third quarter, partly due to price adjustments.
Additionally, some operational improvements are taking effect — for example, the Penang plant is gradually achieving break-even (the Penang plant is TTM Technology's factory in Malaysia). Demand visibility has also improved. The 90-day backlog of orders more than doubled year over year, and there are signs that N+M products may continue to grow until 2028.
In fact, TTM Technology is investing approximately US$400 million to build new production capacity in 2028 based on customer roadmap and demand visibility. The defense business has also further strengthened its position as a stable business pillar — the backlog of orders reached a record $2 billion, and about 65% of defense business revenue in 2027 already has high visibility.
The valuation multiples are compressed like the top of the cycle
TTM Technology's long-term EV/EBITDA valuation ratio has been reduced from about 21.4 times to about 10.9 times the current one. The valuation multiplier is close to falling, and the stock price fell by only about 16% from beginning to end — which means that the EBITDA data for the period has already been drastically raised. The revised earnings forecast data supports this judgment — in the past 6 months, the 2026 earnings per share forecast has been raised by about 40%, while the 2027 forecast has been raised by about 66%.
Interestingly, at the time of this change, the industry's median valuation multiplier had only risen from about 13 times in March to about 13.55 times the current one. This mismatch in direction between the broader industry as a whole and TTM Technology's own valuation and fundamental improvements is an opportunity that analysts now see in giving “buy” ratings.
And much of this opportunity comes from the larger sell-off experienced by AI trading itself over the past few days. Rising borrowing costs are now a factor, and the AI revaluation phase experienced between March and July is over, and there are currently no new catalysts. The general impact of AI cyclical cooling on the entire sector may also put pressure on TTM Technology.
However, the top of the cycle doesn't seem like an imminent threat right now. The valuation of about 10.9 times is nearing the bottom of the cycle. The historical bottom valuation is about 5 to 10 times, while about 10.4 times is the average valuation multiple of the past 5 years. Most of this time was at the valuation level before the AI era.
Even if the peak cycle theory applies to some areas of AI trading, it is clearly not applicable to TTM technology because the company's visibility of demand for 2028 has increased and production capacity is actually being built; revenue is expected to increase by about 48% in 2027, and adjusted earnings per share are expected to increase by about 70% (calculated according to the median value of the company's guidance range).
Why buy now, and what to look out for?
The main risk analysts are now giving a “buy” rating comes from the AI business itself. The company expects the data center business to account for about 49% of sales in the fourth quarter, up from about 30% a year ago. As a result, although demand and performance data depend on the data center business to remain strong, if financing costs rise or the economic benefits of AI deteriorate, hyperscale cloud vendors cut capital expenses, then today's dependence on the AI business is likely to be more affected than TTMI a year ago.
To be fair, some point-in-time risks were already evident in the third quarter. One of the three N+M projects was delayed, and data center sales were about 10% lower than previous guidance. Current valuations mitigate these risks to some extent, as valuations are moving closer to pre-2025 levels, but this is still a pervasive risk requiring continued attention.
Cash conversion has improved from March, but is still not strong enough — free cash flow has been equivalent to only about 7% of adjusted EBITDA since this year. Accounts receivable increased by about 72% year over year, and the growth rate was even higher than the 60% year-on-year increase in revenue itself. Capital expenditure is also forward-looking, and N+M production capacity for 2028 is currently being built.
On the upside, cash conversion trends are improving. In the third quarter alone, the proportion of adjusted EBITDA converted into free cash flow reached about 31% (EBITDA of approximately US$242.3 million, free cash flow of approximately US$74.8 million).
Management also believes that free cash flow in 2027 should be sufficient to cover increasing capital expenses while still retaining remaining cash and beginning debt repayment. As a result, this risk has been mitigated. It is important to note whether operating cash flow can return to more than ten percent of revenue as the Ophir Optics transaction increases revolving credit debt and increases quarterly interest costs by about $20 million.
Overall, current “buy” ratings are largely driven by valuations, while fundamentals show that the company shows no signs of peaking, and no significant risks that have yet to be mitigated. At current levels, returns may also simply be driven by earnings growth, especially if demand still appears to be very solid in 2028.