A Contrarian Bet: Institutional Investors Back FormFactor Despite Headwinds

A curious divergence is unfolding around FormFactor shares, presenting investors with a compelling puzzle. While recent quarterly results fell short of expectations and prompted analyst downgrades, major institutional players have been significantly increasing their stakes. This apparent contradiction points to deeper strategic shifts within the semiconductor testing specialist and evolving dynamics across the chip market.

Major Funds Increase Exposure

In a notable show of confidence, several prominent institutional investors expanded their positions in FormFactor during a period of market uncertainty. Financial heavyweights including Bank of America, Bank of New York Mellon, and Massachusetts Financial Services were among those acquiring shares. This activity has pushed institutional ownership to exceed 98% of all outstanding shares, signaling substantial belief in the company’s long-term prospects despite present challenges.

Analyst Community Maintains Caution

The sentiment among research firms stands in stark contrast to institutional behavior. Multiple analysts have recently revised their assessments downward. In late August, Citigroup adjusted its rating from “Buy” to “Neutral,” simultaneously reducing its price target from $36 to $31. This move followed a similar revision by Stifel Nicolaus in July, which maintained its “Hold” recommendation while lowering its expectations to a $31 target.

These downgrades culminated after the company’s second-quarter 2025 performance failed to meet projections. Earnings per share reached $0.27, notably below the anticipated $0.30. The quarter proved particularly challenging regarding profitability, as gross margins contracted to 38.5%. This pressure stemmed from a less favorable product mix weighted toward lower-margin DRAM products and unexpected ramp-up costs associated with onboarding a second High Bandwidth Memory (HBM) customer.

Should investors sell immediately? Or is it worth buying FormFactor?

HBM Segment Emerges as Bright Spot

Paradoxically, the same HBM market that contributed to margin compression also delivered significant positive developments. FormFactor recorded impressive momentum in its HBM-test card business, with revenues surging to $37 million. This growth reflects the company’s successful expansion to supplying all three major HBM manufacturers. While current margins in this segment remain under pressure, this vertical represents a substantial potential growth driver for future quarters.

Insider Transactions and Forward Outlook

Adding another layer to the investment narrative, recent insider transactions have drawn attention. Two company directors sold shares valued at over $227,000 during August and September, with transactions occurring around the $30 price level. While such sales are routinely scrutinized, they do not necessarily indicate negative insider sentiment.

Looking ahead, FormFactor’s leadership team is preparing for the upcoming CEO Investor Summit in October. This event presents a crucial opportunity for management to articulate its strategic vision and address concerns about the company’s direction. The operating environment remains complex, with broader industry headwinds including trade tensions, export controls, and ongoing margin pressure across the semiconductor sector.

The central question for investors remains unanswered: Will the long-term perspective of institutional buyers prove correct, or will the cautious stance of research analysts ultimately prevail? The market may gain clearer insight when the company presents its case on October 7th in Phoenix.