Aerospace And Defense Dependence Will Expose AI Hardware And Capacity Risks

Catalysts

About TTM Technologies

TTM Technologies supplies complex printed circuit boards, modules and subsystems for aerospace and defense, data centers, networking, automotive, medical and industrial customers.

What are the underlying business or industry changes driving this perspective?

• The heavy concentration of revenue in aerospace and defense at 45% of Q3 2025 sales and an A&D program backlog of about US$1.46b increases reliance on defense budgets and long program cycles. Any slowdown in awards or timing shifts could pressure revenue and operating income, even though current bookings extend over multiple years.
• The company is closely tied to AI related demand, with about 80% of Q3 2025 sales linked to aerospace and defense and AI driven markets. A moderation in data center and networking build outs or changes in AI hardware architectures could leave recent capacity and R&D investments underutilized and weigh on sales growth and adjusted EBITDA.
• Expansion projects in Penang and the Ultra HDI facility in Syracuse require hundreds of millions of dollars of capital spending, and Penang currently creates a margin headwind of around 160 to 195 basis points. If ramp timelines stretch or yields improve more slowly than planned, gross margin and free cash flow could remain under pressure.
• Customer concentration in top data center players and advanced PCB applications, including very high layer count boards such as 87 layers, ties TTM to a narrow set of high performance product cycles. Design shifts or insourcing could lead to volatility in revenue and segment operating income.
• The decline in automotive to 11% of Q3 2025 sales, with expectations for about 9% in Q4 due to inventory adjustments and softer demand at several customers, limits diversification at the same time the company leans harder into AI and defense. This could make consolidated revenue, net income and cash flows more sensitive to a smaller group of growth engines.

Assumptions

This narrative explores a more pessimistic perspective on TTM Technologies compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts. How have these above catalysts been quantified?

• The bearish analysts are assuming TTM Technologies's revenue will grow by 8.1% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from 4.7% today to 8.3% in 3 years time.
• The bearish analysts expect earnings to reach $292.3 million (and earnings per share of $2.71) by about January 2029, up from $131.9 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 33.9x on those 2029 earnings, down from 73.0x today. This future PE is greater than the current PE for the US Electronic industry at 27.1x.
• The bearish analysts expect the number of shares outstanding to grow by 1.2% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.7%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• Roughly 80% of Q3 2025 sales are tied to aerospace and defense and AI related demand. If these long term sectors remain healthy or expand further, TTM could see sustained or rising revenue and adjusted EBITDA instead of the pressure you expect, particularly given the existing A&D program backlog of about US$1.46b.
• Management is clearly focused on higher complexity work, such as very high layer count boards up to 87 layers and integrated subsystems. If this move up the value chain continues to resonate with customers, that could support pricing, gross margin and segment operating income over time.
• The Penang and Syracuse capacity additions are currently a margin headwind. However, customer interest, the planned second Penang facility and progress toward volume production in Syracuse by the second half of 2026 suggest these could evolve into productive assets that support utilization, gross margin and cash flow from operations.
• Aerospace and defense bookings, including programs like AMRAAM, passive detection systems and APS-153 radar, along with a 90 day backlog of US$610.4m and a company wide book to bill ratio of 1.15, indicate ongoing demand visibility that could underpin future sales levels and support operating income.
• Management is prioritizing growth, gross margin, EBITDA and cash generation. Q3 2025 results already show adjusted EBITDA of US$120.9m at a 16.1% margin and cash and cash equivalents of US$491.1m, so continued focus on these metrics could support earnings, free cash flow and balance sheet strength.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The assumed bearish price target for TTM Technologies is $72.0, which represents up to two standard deviations below the consensus price target of $87.25. This valuation is based on what can be assumed as the expectations of TTM Technologies's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $105.0, and the most bearish reporting a price target of just $72.0.
  
• In order for you to agree with the more bearish analyst cohort, you'd need to believe that by 2029, revenues will be $3.5 billion, earnings will come to $292.3 million, and it would be trading on a PE ratio of 33.9x, assuming you use a discount rate of 8.7%.
  
• Given the current share price of $93.24, the analyst price target of $72.0 is 29.5% lower. Despite analysts expecting the underlying business to improve, they seem to believe the market's expectations are too high.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.