Analog Devices (NASDAQ: ADI) is not as well-known within the semiconductor industry as major players like Nvidia or Taiwan Semiconductor, that are riding the fast-growing adoption of artificial intelligence (AI) and reporting eye-popping growth. That explains why shares of the chipmaker are up just 12% yr so far, lagging the stunning gains recorded by a few of its peers and the semiconductor sector overall.
Nonetheless, a better take a look at the corporate’s latest quarterly results and management’s commentary indicates the chipmaker is on the verge of a turnaround. With its offerings utilized in various end markets, including the economic, automotive, consumer, and aerospace and defense industries, amongst others, buying this semiconductor stock right away may very well be a sensible thing to do from a long-term perspective.
Analog Devices is struggling, but there are signs of a revival
Analog Devices released its fiscal 2024 third-quarter results (for the three months ended Aug. 3) last month. The corporate’s revenue fell 25% yr over yr to $2.31 billion, while non-GAAP earnings were down 37% from the identical quarter last yr to $1.58 per share.
The chipmaker’s poor year-over-year comparisons could be attributed to weak demand across just about all of its end markets. The economic business, for instance, is Analog’s largest segment and accounts for 46% of its top line. It witnessed a 37% yr over yr contraction in revenue. That is not surprising as this segment continues to be reeling from the impact of the oversupply brought on by poor demand last yr.
More specifically, the worldwide semiconductor industry’s revenue was down 11% in 2024 as demand remained weak for smartphones, personal computers, and data centers. Although AI has emerged as a savior for the semiconductor industry prior to now yr, Analog Devices hasn’t been capable of ride this trend because it doesn’t make graphics processing units (GPUs) like Nvidia and AMD.
Nonetheless, management points out that its performance within the previous quarter was higher than expected, and the top markets it serves could soon start recovering.
For guidance, Analog Devices is projecting $2.30 billion to $2.50 billion in revenue in the present quarter with adjusted earnings of $1.53 to $1.73 per share. The corporate’s revenue stood at $2.72 billion in the identical quarter last yr, so Analog’s year-over-year revenue decline is ready to slow to 11% in the present quarter. The pace of decline on its bottom line should slow as well.
These are indications the inventory correction in Analog Devices’ end markets may very well be nearing an end. CEO Vincent Roche remarked on the newest earnings call that “improved customer inventory levels and order momentum across most of our markets increased my confidence that our second quarter marks the cyclical bottom for ADI.”
A possible recovery could lead on to more stock upside
Consensus estimates indicate Analog Devices’ revenue will decline 24% in fiscal 2024 to $9.38 billion, while its earnings are heading in the right direction to drop to $6.33 per share from $10.09 per share within the previous fiscal yr. Nonetheless, fiscal 2025 should see a rebound with revenue up 10% to $10.35 billion, while its bottom line could increase by almost 20% to $7.57 per share.
Though analysts have tempered their expectations for fiscal 2026, they’re still forecasting an acceleration in Analog’s top- and bottom-line growth, as we are able to see within the chart below:
Those estimates can still move higher if Analog Devices’ financial performance improves on the back of a recovery in its end markets. That is why there’s a superb probability this chipmaker could step on the gas and deliver more gains over the following couple of years.
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Harsh Chauhan has no position in any of the stocks mentioned. The Motley Idiot has positions in and recommends Advanced Micro Devices, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Idiot has a disclosure policy.
Up 12% in 2024, You May Need to Buy This Semiconductor Stock Before It Goes on a Bull Run was originally published by The Motley Idiot