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Analog device growth on second quarter results and stable third quarter forecast signal

Posted on by darion

Analogue devices (ADI +7%) reached a record high today after beating second-quarter expectations and delivering optimistic third-quarter forecasts, pointing to stabilizing end-market demand. The semiconductor maker previously predicted that customer inventory adjustments would ease in the second quarter, setting the stage for a recovery after several periods of year-over-year sales declines and sequential sales gains. The ADI confirmation boosted investor confidence following positive guidance from peers Texas Instruments (TXN, Financials) last month, pushing ADI shares higher.

  • Second-quarter revenues declined 33.8% year-over-year to $2.16 billion, worse than the decline of 22.7% in the prior quarter and 16.4% in the fourth quarter of 2023. Adjusted EPS also declined by 50.5% compared to the year-ago period to USD 1.40. ADI has not seen sequential revenue or earnings growth since Q2 2023.
  • Despite slowing demand, ADI shares have surged over the past year, fueled by enthusiasm around artificial intelligence. The company’s third-quarter guidance for adjusted earnings in the range of $1.40-$1.60 and revenue in the range of $2.17-$2.37 billion represents average quarter-over-quarter growth.
  • AI keeps ADI interested and management optimistic for 2025. AI workloads require more power, which benefits ADI’s power management processors. Big tech companies like Microsoft (MSFT, Finance) AND Metaplatforms (META, financial) announced significant capital spending on AI infrastructure.
    • This development is likely to strengthen ADI’s communications end market, particularly data centers, and expand into the industrial, automotive and consumer electronics sectors.
  • Industrial and automotive markets are key to growth, generating 77% of ADI’s revenues. STMicroelectronics (STM, Finance) noted a slowdown in the automotive sector last month, while TXN indicated that customers were nearing the end of the inventory depletion cycle, but remained cautious about predicting a bottom.

Overall, ADI’s first bullish quarterly outlook since early 2023 keeps ADI shares up about 10% year over year, despite warning signs from companies such as ASML (ASML, Finance) AND Taiwan Semi (TSM, Finance). We remain optimistic about ADI’s long-term prospects, expecting demand to increase through 2025.