Is Analog Devices, Inc. (ADI) the best automation stock to buy now?

We recently published a list 10 Best Automation Stocks to Buy NowIn this article, we’ll take a look at where Analog Devices, Inc. (NASDAQ:ADI) stacks up against other automation stocks.

2023 was the year of generative AI, mainly due to the widespread adoption of ChatGPT and the subsequent reaction. Now 2024 is the year where companies really started to take advantage of this ever-evolving technology. McKinsey revealed that AI has supported companies in both aspects: cost reductions and revenue jumps.

Automation Technologies – Key Trends

In 2024, the integration of automation technologies continues to revolutionize every aspect of supply chain management. This has led to unprecedented levels of efficiency and agility. The global integrated automated supply chain is expected to reach $25.6 billion by 2033, from $13.4 billion in 2023, according to industry data Market.us.

From removing storage bottlenecks to inventory management and demand forecasting, supply chain automation has changed traditional practices and redefined the dynamics of the logistics industry. In inventory tracking, advanced warehouse management systems that are powered by AI and ML algorithms focus on optimizing inventory placement, route planning, resource allocation, etc.

Inventory tracking and management are being revolutionized by the use of automation solutions such as RFID tagging, barcode scanning, and computer vision. Real-time tracking technologies offer detailed visibility into inventory movements. This allows companies to monitor inventory levels, detect discrepancies, and manage stock shortages/overstocks. Manufacturers are now moving towards smart factories.

Smart factories reflect and demonstrate the principles of Industry 4.0. They tend to use 5G, IoT, AI, and other advanced technologies. Experts believe that smart factories enable predictive maintenance and decision-making.

Implementing advanced automation

In the field of automation, a new topic is emerging: automated decision-making. Its adoption has rapidly spread beyond traditional sectors such as manufacturing and logistics. The demand for decision intelligence is driven by the requirement for data-driven and well-informed decision-making, which increases the competitiveness and efficiency of enterprises.

Automated decision-making is now being embraced by key domains, including healthcare and finance. In healthcare, automation complements clinical decision-making processes, improves patient care delivery, and manages resource allocation. It involves using AI and ML algorithms to evaluate patient data, medical images, and genomic sequences and tailor patient care.

Similarly, in finance, automated systems continue to transform high-end operations such as risk assessment, fraud detection, and investment management. AI algorithms evaluate large data sets of financial transactions and market trends to optimize investment strategies. In 2024, the software development industry is poised for a remarkable transformation with cutting-edge innovation.

Quantum computers and robotics

The latest software technologies that are likely to change the landscape include quantum computing, virtual reality (VR), augmented reality (AR), big data, data analysis, 5G technology, robotics, etc.

Quantum computers continue to rapidly develop, evolve, and change the scientific and industrial landscape. Unlike classical computers—which use bits as the smallest unit of information—quantum computers use qubits. They use the principles of quantum mechanics to perform complex and difficult calculations. For example, in drug discovery, quantum algorithms simulate molecular interactions in a more accurate and sophisticated way than traditional methods. Integrating quantum computers with artificial intelligence is another key emerging trend.

The unprecedented advancements in robotics and AI are expected to bring revolutionary positive transformations. More and more sectors continue to understand the benefits of adopting robotics and AI. Globally, the robotics market is expected to see healthy revenue growth, with a projected value of US$38.24 billion this year. The strongest segment in the robotics market is expected to be service robotics, which is expected to lead the market in terms of volume. Service robotics finds application in sectors such as healthcare, medical, military and defense, logistics, etc., while industrial robots are used in automotive, electronics, food and beverage, etc.

The trends driving the robotics market are supported by the development of new technologies. These include 5G, AI, Edge Computing, IIoT, cloud, open-source, etc. As AI in robotics continues to evolve, more and more industries are embracing the latest technologies. As a result, manufacturers are making data-driven decisions. Some industries are using self-learning robots to perform work processes.

Smart factories use AI-enabled robotics to perform smarter, more reliable, and more efficient processes. They help optimize production. AI-based robotic technologies, which include computer vision and touch sensing, are being used to automate some tasks. For example, reinforcement learning is being used for better industrial assembly. The implementation of robotics, intelligent automation, and high-tech manufacturing will help workers with manual work and reduce the number of repetitive tasks.

At Insider Monkey, we’re fascinated by the stocks that hedge funds invest in. The reason is simple: Our research has shown that we can outperform the market by mimicking the top stock picks of the best hedge funds. Our quarterly newsletter strategy selects 14 small- and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (see more details here).

Analog Devices, Inc. (NASDAQ:ADI)

Average growth potential: 23.04%

Analog Devices, Inc. (NASDAQ:ADI) is a leading manufacturer of integrated circuits for processing analog, mixed-signal, and digital signals. It holds a significant market share in converter integrated circuits. These are used to translate analog signals into digital and vice versa. The company specializes in analog integrated circuits (sensors). These sensors interact with signals from the physical world in the same way that electricity or sound waves interact.

The company reported Q2 2024 results with revenue of $2.16 billion. This figure was above the average forecast. Analog Devices, Inc. (NASDAQ:ADI) achieved profitability and EPS above the high end of the forecast, primarily due to the resilience of its business model and disciplined cost control. With inventory rationalization across its customer base, the company expects to return to sequential growth in Q3 2024.

The company’s products address the needs of high-growth trends such as automotive electrification and advanced driver assistance systems, factory intelligence/automation, etc. These factors are expected to help the company achieve positive cash flow in the next few years.

AI is an area where Analog Devices, Inc. (NASDAQ:ADI) is increasing its investments, and the company is quite optimistic about its applications. AI is expected to accelerate high-growth trends from centralized applications in data centers to applications at the physical edge.

Analog Devices, Inc. (NASDAQ:ADI) stock has had a tough time recently, largely due to weak demand from customers and distributors. However, Wall Street analysts believe that this trend appears to be bottoming out, with investors regaining confidence in the secular nature of demand in the industry.

Analysts at JPMorgan Chase & Co. covered shares of Analog Devices, Inc. (NASDAQ:ADI) and raised their price target from $220.00 to $260.00. They gave the stock an “Overweight” rating on January 23.^rd May 2024. In the first quarter, the company’s shares were held by 65 hedge funds, whose total value of shares was $4.37 billion.

Craft partnersinvestment management firm released its Q2 2024 investor letter and mentioned Analog Devices, Inc. (NASDAQ:ADI). Here’s what the fund said:

“If you look at it from a positive side, our biggest donors were Analog Devices, Inc. (NASDAQ:ADI), NetApp and Arch Capital Group. Analog Devices (ADI) is the world’s second-largest analog semiconductor IC manufacturer, behind Texas Instruments. Investors are excited about the prospects of a cyclical recovery in the semiconductor sector as ADI’s bookings have increased on improving demand and reduced inventory. ADI, originally acquired in 2006, is one of our longest-held stocks as the company has proven to be an excellent value proxy due to its leadership position in a secular growth industry, strong balance sheet and cash-generating properties. ADI operates in attractive segments that offer high gross and operating margins and have loyal customers. Manufacturing ICs for applications that often have decades of shelf life (automotive, industrial, communications) and that are a small portion of the total cost in the value chain makes this business attractive and difficult to replace once designed into the product/application.”

Generally speaking, ADI takes 10th place on our list of the best automation stocks to buy. While we recognize ADI’s potential as an investment, our belief is based on the belief that AI stocks offer a better chance of achieving higher returns, and in a shorter time frame. If you’re looking for an AI stock that has more promise than ADI but is trading at less than 5 times earnings, check out our report on cheapest AI action.

READ MORE: $30 Trillion Opportunity: The 15 Best Humanoid Robot Stocks to Buy, According to Morgan Stanley AND Jim Cramer says NVIDIA has ‘become a wasteland’.

Disclosure: None. This article was originally published on Insider Monkey.