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Analog Devices Earnings: Raising Fair Value Estimate Thanks to AI Boom

Like its peers, ADI is firing on all cylinders.

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Securities in This Article
Analog Devices Inc
(ADI)

Key Morningstar Metrics for Analog Devices

  • Fair Value Estimate
    : $380.00
  • Morningstar Rating
    : ★★
  • Morningstar Economic Moat Rating
    : Wide
  • Morningstar Uncertainty Rating
    : High

What We Thought of Analog Devices’ Earnings

Analog Devices ADI reported fiscal second-quarter revenue of $3.62 billion, up 37% year over year and above the high end of its guidance range. ADI expects third-quarter revenue of $3.9 billion, representing 35% growth and ahead of FactSet consensus estimates of $3.61 billion.

Why it matters: Like its peers, ADI is firing on all cylinders, benefiting from a cyclical recovery across its core product lines while prospering from content in the artificial intelligence infrastructure buildout.

  • Revenue in ADI’s largest segment, industrial, was up 55% year over year, with strong growth in most product lines such as aerospace/defense and testing equipment. Communications revenue, which includes data center products, rose 76% year over year.
  • Adjusted gross margin was 73%, ahead of guidance of 72.2%, thanks to higher sales levels and strong factory utilization. We anticipate gross margin will remain in this range in the near and medium term.

The bottom line: We raise our fair value estimate for wide-moat ADI to $380 per share from $325, as we anticipate stronger near-term and long-term revenue growth, thanks to AI. The shares were down 7% in midday May 20 trading, as we think investors were looking for more out of the forecast. The stock appears slightly overvalued to us.

Coming up: By end market, in the third quarter on a sequential basis, ADI expects 10%-15% growth in communications, high-single-digit growth in industrial and automotive, and about a 5% decline in consumer.

  • ADI also announced the acquisition of Empower Semiconductor for $1.5 billion. Financial details were not disclosed, although management hinted that Empower’s revenue was minimal in 2026 but set to deliver “significant revenue” in 2027.
  • This bolt-on deal appears reasonable to us in general. It better positions ADI in power management semis. Tactically, it sounds as if ADI had a product gap and was able to buy Empower to get a time-to-market advantage to support new AI server product launches.

Editor’s Note: This analysis was originally published as a stock note by Morningstar Equity Research.

The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.

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