Analog Devices (ADI +7%) hit record highs today after surpassing Q2 expectations and providing optimistic Q3 guidance, indicating stabilizing end-market demand. The semiconductor manufacturer had previously anticipated that customer inventory adjustments would ease during Q2, setting the stage for a recovery after several periods of declining year-over-year and sequential sales growth. Investors' confidence was bolstered by ADI's confirmation, following positive guidance from peer Texas Instruments (TXN, Financial) last month, pushing ADI shares higher.
- Q2 revenues fell by 33.8% year-over-year to $2.16 billion, worsening from a 22.7% drop last quarter and a 16.4% decline in Q4 2023. Adjusted EPS also plunged 50.5% from the year-ago period to $1.40. ADI hasn't seen sequential growth in revenue or earnings since Q2 2023.
- Despite the demand slowdown, ADI shares have risen over the past year, driven by enthusiasm around AI. The company's Q3 guidance of adjusted earnings between $1.40-1.60 and revenues between $2.17-2.37 billion represents quarter-over-quarter growth at the midpoints.
- AI has sustained interest in ADI and management's optimism for 2025. AI workloads require more power, benefiting ADI's power management processors. Major tech firms like Microsoft (MSFT, Financial) and Meta Platforms (META, Financial) have announced significant capital spending on AI infrastructure.
- This development will likely boost ADI's communications end market, particularly data centers, and expand into industrial, automotive, and consumer electronics sectors.
- Industrial and automotive markets, which make up 77% of ADI's revenue, are crucial for growth. STMicroelectronics (STM, Financial) noted a deceleration in the automotive sector last month, while TXN indicated that customers are nearing the end of an inventory depletion cycle but remained cautious about predicting a bottom.
Overall, ADI's first bullish quarterly outlook since early 2023 has kept shares about 10% higher year-to-date, despite red flags from companies like ASML (ASML, Financial) and Taiwan Semi (TSM, Financial). We remain optimistic about ADI's long-term prospects, anticipating a demand uptick by 2025.
