Teledyne Technologies Incorporated (TDY) | The Buildout — AI Infrastructure
The Verdict
Teledyne is a diversified industrial technology company built around highly engineered sensing, imaging, instrumentation, electronics, and engineered systems. Its AI-infrastructure role is indirect: high-bandwidth oscilloscopes and protocol analyzers validate data-center silicon and networking, MEMS micromirrors support optical switching, and machine-vision cameras support semiconductor inspection. Management has said it will not chase AI/data-center M&A, so the company remains primarily a defense-industrial and commercial sensor business with AI-adjacent product lines.
| Market Cap | — |
| Revenue (TTM) | $6.4B |
| Revenue Growth | +7.9% |
| EBITDA Margin (TTM) | 24.8% |
| Net Debt | $1.7B |
| Earnings Beats | 6 of 6 |
| P/E (TTM) | — |
| EV/EBITDA (TTM) | — |
What We Like
- Book-to-bill reached 1.23 in Q2 2026, the 11th consecutive quarter above 1.0; Digital Imaging booked above 1.4x.
- Funded backlog ended Q2 at approximately $5 billion; the Q1 10-Q showed 71% of remaining performance obligations expected to convert within 12 months.
- Q2 2026 was the strongest quarterly orders, sales, and operating profit in company history, according to management.
- Defense is about 30% of company sales, or roughly 35% including foreign defense, with 2026 defense sales guided to high-single-digit growth.
- Net leverage was 1.1x at Q2 2026, the lowest in six years, according to management.
What We’re Watching
- Over $1 billion of annual revenue depends on germanium supply and rare earth magnets; China has restricted exports of related materials.
- H2 2026 FX benefit is expected to be zero; reported growth may slow even if constant-currency performance is steady.
- Q2 benefited from about a $10 million tariff pickup, mostly in Digital Imaging; management says it is not necessarily repeatable.
- Varex closing date is not provided, leaving M&A integration and deal-execution risk open.
The thesis is strengthening based on Q2 2026 order, sales, and operating-profit records, two 2026 guidance raises, and broad commercial short-cycle inflecting. The open question is whether the record backlog converts into reported revenue at the pace implied, given germanium and rare-earth supply exposure and deliberately conservative guidance.
Earnings Beat
Teledyne reported Q2 2026 net sales of $1,662.5 million, up 9.8% year over year, with gross margin of 44.4% versus 42.6% a year earlier. Net income was $251.7 million, and book-to-bill was 1.23, the 11th consecutive quarter above 1.0.
| Metric | Q2 FY2026 | Q1 FY2026 | Q2 FY2025 | YoY |
|---|---|---|---|---|
| Revenue | $1.7B | $1.6B | $1.5B | +9.8% |
| Gross margin | 44.4% | 39.5% | 42.6% | +180bps |
| EBITDA | $419M | $381M | $365M | +14.9% |
| EPS | $5.37 | $4.85 | $4.43 | +21.2% |
| Book-to-bill | 1.23 | 1.16 | n/a | — |
This morning, we were pleased to announce the strongest quarterly orders, sales and operating profit in the company's history.— Robert Mehrabian, July 22, 2026
Management tone: Management described Q2 2026 as the strongest quarter in company history and called its own guidance conservative. It raised full-year guidance for the second time in 2026 and said it hopes for upside.
Management Guidance
Management's July 2026 full-year guidance is over $6.53 billion revenue, just under 7% growth, non-GAAP EPS of $24.45 to $24.65, GAAP EPS of $20.73 to $20.99, and free cash flow over $1 billion. Q3 2026 guidance is non-GAAP EPS of $6.05 to $6.15 and GAAP EPS of $5.10 to $5.25. Segment growth expectations: Digital Imaging ~7.5%, Instrumentation ~5.7%, Aerospace and Defense Electronics ~7.2%, Engineered Systems ~5.6%.
Trajectory
Quarterly net sales moved from $1,560.1 million in Q1 2026 to $1,662.5 million in Q2 2026, up 9.8% year over year. Q2 gross margin reached 44.4% versus 42.6% a year earlier, and the data spine shows gross and operating margin expansion of 160 basis points and EBITDA expansion of 130 basis points. Management attributes the improvement to volume leverage, cost control, and stronger Digital Imaging margins; capacity, not demand, is now the binding constraint.
The Model
The model's locked FY+1 projection is $6,530 million revenue and $1,613 million EBITDA, a 24.7% margin. FY+2 projects $7,000 million revenue and $1,785 million EBITDA, a 25.5% margin. The near term is anchored by the order book and twice-raised 2026 guidance; FY+2 assumes continued defense growth and commercial short-cycle recovery.
| Metric | FY2025 | Next FY (E) | Following FY (E) |
|---|---|---|---|
| Revenue | $6.1B | $6.5B | $7.0B |
| YoY Growth | — | +6.8% | +7.2% |
| EBITDA | $1.5B | $1.6B | $1.8B |
| EBITDA Margin | 24.3% | 24.7% | 25.5% |
Projections are the median of 5 independent model runs. The model’s revenue sits 3.4% above analyst consensus.
Management's July 2026 full-year guidance is over $6.53 billion revenue, just under 7% growth, non-GAAP EPS of $24.45 to $24.65, GAAP EPS of $20.73 to $20.99, and free cash flow over $1 billion. Q3 2026 guidance is non-GAAP EPS of $6.05 to $6.15 and GAAP EPS of $5.10 to $5.25. Segment growth expectations: Digital Imaging ~7.5%, Instrumentation ~5.7%, Aerospace and Defense Electronics ~7.2%, Engineered Systems ~5.6%.
What Could Go Right — and Wrong
- Golden Dome moves from architecture to funded contracts, converting management's primary-supplier position into multiyear space revenue.
- PCI Express Gen 6 ramp accelerates in H2 2026, lifting test and measurement growth above the ~3% full-year expectation.
- Teledyne wins very large subsea or counter-UAS programs management says it is competing for.
- Varex closes and integrates cleanly, adding an imaging business.
- Germanium and rare-earth substitution or secured supply de-risks over $1 billion of revenue.
- Chinese export restrictions tighten on germanium and rare earth materials.
- Defense orders remain multiyear but near-term conversion stalls.
- PCI Express Gen 6 device releases slip, delaying protocol analyzer recovery beyond H2 2026.
- Commercial short-cycle recovery stalls in semiconductor inspection, healthcare, or test and measurement.
- Varex integration disappoints or the deal stalls.
Looking Ahead
The next 12 months test order conversion, capacity expansion, and the commercial short-cycle inflection. The clearest AI-adjacent signpost is PCI Express Gen 6 adoption in H2 2026, which management has tied to protocol-analyzer acceleration. Defense watchpoints include Rogue 1 LASSO follow-on orders, Golden Dome funding progression, and unnamed large subsea program awards; Varex closing and integration add M&A execution risk.
- Q3 2026Q3 guidance test — Q3 non-GAAP EPS guide is $6.05–$6.15; tests whether Q2 mix carries.
- H2 2026PCI Express Gen 6 launches — Protocol analyzer recovery and full-year T&M growth of ~3% depend on chip releases.
- H2 2026Free cash flow milestone — H1 free cash flow was $489.0M; H2 needs above ~$511M to exceed $1B.
- 2026Capacity and co-investment announcements — Government commitments are subject to release approvals; details remain undisclosed.
- Beyond 2026Varex Imaging closing and integration — No closing date provided; tests return to $1B-plus M&A execution.
Financials
Annual Summary
| Metric | FY2024 | FY2025 | TTM | YoY |
|---|---|---|---|---|
| Revenue | $5.7B | $6.1B | $6.4B | +7.9% |
| Gross Margin | 43.0% | 39.4% | 39.0% | 358bps |
| EBITDA | $1.3B | $1.5B | $9.6B | +14.4% |
| EBITDA Margin | 22.9% | 24.3% | 24.8% | +139bps |
| Net Income | $819M | $895M | $975M | +9.2% |
| Free Cash Flow | $1.1B | $1.1B | $6.2B | — |
| Net Cash | — | — | — | — |
Key Ratios (Trailing)
- P/E TTM—
- EV/EBITDA TTM—
- EV/Revenue TTM—
- Price/FCF TTM—
- Gross Margin (TTM)39.0%
- EBITDA Margin (TTM)24.8%
- Net Margin (TTM)15.3%
- ROIC7.8%
- FCF Conversion72.2%
- SBC / Revenue0.3%
The Company
Teledyne Technologies Incorporated provides enabling technologies to sense, analyze and distribute information for industrial growth markets that require advanced technology and high reliability. Its four reporting segments are Digital Imaging, Instrumentation, Aerospace and Defense Electronics, and Engineered Systems. Management describes the company as a broad set of sensors and vertically integrated platforms 'from space to deep sea.'
The company operates principal facilities across the U.S., Canada, Europe, and the U.K.; it both sells sensors and components as a merchant supplier and integrates them into its own platforms. U.S. Government sales were 25.5% of net sales in FY2025, while management puts defense at about 30% of company sales, or roughly 35% including foreign defense. Approximately 65% of the business is commercial, and international businesses represent about 48% of the portfolio.
Business Segments
Competitive Landscape
The FY2025 10-K discloses that Teledyne FLIR's components operation is a single source supplier of certain sensors used throughout the FLIR business. Management claims Teledyne is the primary supplier to 'just about everybody' in Golden Dome. The provided source set does not include named competitor rows, so no competitor table is supplied.
Supply Chain
Teledyne sits between specialty material and component suppliers and defense, scientific, and semiconductor-equipment customers. The provided source set references a Wiring supply-chain relationship file but does not include its row-level relationship counts or named supplier/competitor rows. The 10-K discloses limited/single-source supply risks, including germanium and rare-earth magnets.
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