Is Cohu (COHU) a High-Risk Bet Amid Industry Downturn and Weak Earnings Outlook?

The semiconductor equipment industry is no stranger to cycles of euphoria and despair. In 2025, the sector faces a familiar challenge: a cyclical downturn driven by global de-stocking, geopolitical tensions, and softening demand for traditional chips. Cohu (COHU), a mid-sized player in the test and inspection equipment space, sits at the crossroads of these headwinds and long-term growth opportunities. For investors, the question is whether COHU is a high-risk bet or a misunderstood opportunity in a volatile sector.

Short-Term Technical Risks: A Bearish Crosscurrent

COHU's recent stock performance reflects the tug-of-war between short-term bearish momentum and long-term resilience. As of August 15, 2025, the stock closed at $19.86, down 5.02% from the previous day, marking six declines in ten trading days. The stock's volatility—averaging 4.41% daily swings—has created a choppy trading environment.

Technically, COHU is in a consolidation phase. The short-term 50-day moving average (SMA_50) sits above the 200-day SMA, suggesting a positive near-term bias. However, the long-term trend is bearish, with the 200-day SMA below the 200-day SMA_200. This divergence creates a “mixed signal” scenario. Key resistance lies at $20.09 (short-term SMA), while support is at $19.67 (long-term SMA). A breakout above $20.09 could reignite bullish momentum, but a breakdown below $19.67 would likely trigger further selling.

The Relative Strength Index (RSI) at 52.26 indicates neutral sentiment, with no overbought or oversold extremes. Meanwhile, the MACD has issued a buy signal, but this contrasts with a recent MACD Death Cross on the 15-minute chart—a bearish indicator suggesting continued downward pressure. Traders should watch for a clear breakout or breakdown before committing capital.

Fundamental Risks: A Sector in Retreat

Cohu's earnings outlook is equally concerning. The company reported a net loss of $87.1 million in the past 12 months, with a negative ROE of -10.09% and ROIC of -5.41%. These metrics highlight operational struggles, exacerbated by a 10.05% year-on-year revenue decline in Q1 2025. Competitors, meanwhile, saw 8.04% revenue growth and 23.45% net income increases, underscoring COHU's competitive disadvantage.

The broader semiconductor equipment industry is grappling with a global de-stocking phase, particularly in automotive and industrial sectors. Cohu's exposure to China—15–20% of revenue—adds another layer of risk, as trade restrictions and supply chain disruptions persist. Additionally, rising interest rates are dampening capital expenditure, with Q1 2025 revenue guidance of $90–$104 million signaling a potential sequential decline.

Long-Term Recovery Potential: A Glimpse of Hope

Despite these challenges, Cohu's long-term prospects are not without merit. The company's strategic pivot toward high-margin software solutions—exemplified by the $140 million acquisition of Tignis, Inc.—positions it to capitalize on the $20 billion semiconductor analytics market. Tignis's AI-driven process control software is already showing promise, with COHU targeting 50% annual software revenue growth by 2026.

Cohu's financial flexibility is another strength. The company holds $262.1 million in cash and a net cash position of $154.3 million, providing a buffer against short-term volatility. This liquidity allows for R&D investments and potential acquisitions, such as the recent launch of a MEMS microphone tester and AI Inspection software. These innovations could differentiate COHU in a crowded market.

The semiconductor industry itself is expected to rebound by 2025, driven by demand for AI chips, high-bandwidth memory (HBM), and silicon carbide (SiC) power semiconductors. Cohu is betting on these high-growth segments, with CEO Luis Müller projecting $25–30 million in revenue from HBM and SiC in 2025. These markets, with their proprietary technology and limited competition, offer gross margins exceeding 50%, a stark contrast to COHU's current 44% average.

Institutional Confidence and Analyst Sentiment

Institutional ownership of COHU stands at 94.67%, with major firms like Invesco Ltd. and Parallel Advisors LLC increasing stakes. This institutional backing suggests confidence in COHU's long-term potential, even as short-term volatility persists. Analysts are divided, with a “Moderate Buy” consensus and an average price target of $27.17—34.49% above the current price. However, downgrades from firms like Wall Street Zen highlight the uncertainty surrounding COHU's near-term execution.

Investment Thesis: A High-Risk, High-Reward Proposition

COHU is a stock for the patient and the bold. The short-term risks—bearish technical indicators, weak earnings, and industry headwinds—are undeniable. However, the long-term narrative is compelling: a company with strong cash reserves, a strategic pivot to software, and exposure to high-growth AI and EV markets.

For investors, the key is timing. A breakout above $20.09 could signal a short-term rally, but the broader trend remains bearish. A more prudent approach might be to wait for a clearer inflection point—such as a rebound in software revenue or a stabilization in the semiconductor cycle—before committing capital.

Final Verdict

Cohu is a high-risk bet, but not a foolish one. The semiconductor equipment sector's cyclical nature means that today's struggles could be tomorrow's gains. For those with a long-term horizon and a tolerance for volatility, COHU offers a unique opportunity to invest in a company poised to benefit from AI-driven innovation. However, for short-term traders, the risks outweigh the rewards. As always, due diligence and a clear understanding of one's risk profile are essential before pulling the trigger.