Analog Devices: Stock Appears Cheap Versus Our Fair Value, but Less So If Tariffs Stay in Place

This analysis was originally published as a stock note by Morningstar Equity Research.

Key Morningstar Metrics for Analog Devices

• Fair Value Estimate: $245
• Morningstar Rating: ★★★★
• Morningstar Economic Moat Rating: Wide
• Morningstar Uncertainty Rating: Medium

We maintain our $245 fair value estimate and wide moat rating for Analog Devices ADI, along with maintaining our ratings across the rest of our US and European analog/mixed signal chipmaker coverage. This is amid a host of tariffs levied by the US government, with our greatest concern stemming around the 25% tariffs on the automotive sector.

Across our coverage, if the stated tariffs are retained, we can envision scenarios where our fair value estimates may fall 10%-20%. This downside would come if higher automotive production costs will lead to higher prices for buyers, lower volumes sold, and, thus, fewer chips deployed in these vehicles.

Chipmakers in Recovery Mode

We remain optimistic about the secular trend of rising chip content per car, especially within electric vehicles, but revenue growth from content gains per car might be partially (or fully) offset by volume declines. Similarly, these chipmakers were just starting to come out of a severe inventory correction across the industrial end market and a lesser one in automotive. We are modeling a snapback in demand as these excess inventories are used up, but lower production would stunt the magnitude of the cyclical recovery.

Across the carnage of the April 3 selloff, Analog Devices looks the most overdone to us, trading near $180. We rarely see a discount in this best-of-breed chipmaker, and we like that ADI has a bit less exposure to autos and consumer devices than some of its peers. In a downside scenario where tariffs remain in place, we can envision about $2 billion in revenue and $2 in adjusted earnings per share being shaved off (down to, say, $11 billion and $8 in EPS in fiscal 2026) with average to below-average growth thereafter. However, we can still justify a $200 fair value estimate under these conditions. That said, the only tariff certainty is uncertainty at this point, and further downside scenarios are possible.