Analog Devices (ADI)

Manufacturer of analog chips Analog Devices (NASDAQ:ADI) reported Q3 CY2025 results beating Wall Street’s revenue expectations, with sales up 25.9% year on year to $3.08 billion. On top of that, next quarter’s revenue guidance ($3.1 billion at the midpoint) was surprisingly good and 4.4% above what analysts were expecting. Its non-GAAP profit of $2.26 per share was 1.1% above analysts’ consensus estimates.

Company Overview

Founded by two MIT graduates, Ray Stata and Matthew Lorber in 1965, Analog Devices (NASDAQ:ADI) is one of the largest providers of high performance analog integrated circuits used mainly in industrial end markets, along with communications, autos, and consumer devices.

Analog Devices’ peers and competitors include Texas Instruments (NASDAQ: TXN), Skyworks (NASDAQ:SWKS), Infineon (XTRA:IFX), NXP Semiconductors NV (NASDAQ:NXPI), ON Semi (NASDAQ:ON), Marvell Technology (NASDAQ:MRVL), and Microchip (NASDAQ:MCHP).

Longer manufacturing duration allows analog chip makers to generate greater efficiencies, leading to structurally higher gross margins than their fabless digital peers. The downside of vertical integration is that cyclicality can be more pronounced for analog chipmakers, as capacity utilization upsides work in reverse during down periods. Read More. The semiconductor industry is broadly divided into analog and digital semiconductors. Digital chips are what most people think of as the brains of almost every electronic device. Their primary purpose is to either store (memory chips) or process (CPUs/GPUs) data. By comparison, analog chips regulate real world signals, such as temperature, speed, sound, or electrical current, converting them into a stream of digital data that can be processed by digital semiconductors. Analog semiconductors are also used to manage power in any electronic device; they convert, store and distribute the electrical energy that comes from a battery or wall plug. Analog chips are found everywhere from household appliances like refrigerators or washing machines, to smartphones, cars and factory production lines.

A company’s long-term sales performance can indicate its overall quality. Any business can have short-term success, but a top-tier one grows for years. Luckily, Analog Devices’s sales grew at an impressive 14.5% compounded annual growth rate over the last five years. Its growth beat the average semiconductor company and shows its offerings resonate with customers. Semiconductors are a cyclical industry, and long-term investors should be prepared for periods of high growth followed by periods of revenue contractions.

We at StockStory place the most emphasis on long-term growth, but within semiconductors, a half-decade historical view may miss new demand cycles or industry trends like AI. Analog Devices’s recent performance marks a sharp pivot from its five-year trend as its revenue has shown annualized declines of 5.4% over the last two years.

This quarter, Analog Devices reported robust year-on-year revenue growth of 25.9%, and its $3.08 billion of revenue topped Wall Street estimates by 2.1%. Beyond the beat, we believe the company is still in the early days of an upcycle as this was the third consecutive quarter of growth - a typical upcycle tends to last 8-10 quarters. Company management is currently guiding for a 27.9% year-on-year increase in sales next quarter.

Looking further ahead, sell-side analysts expect revenue to grow 12.5% over the next 12 months, an improvement versus the last two years. This projection is above the sector average and suggests its newer products and services will fuel better top-line performance.

Days Inventory Outstanding (DIO) is an important metric for chipmakers, as it reflects a business’ capital intensity and the cyclical nature of semiconductor supply and demand. In a tight supply environment, inventories tend to be stable, allowing chipmakers to exert pricing power. Steadily increasing DIO can be a warning sign that demand is weak, and if inventories continue to rise, the company may have to downsize production.

This quarter, Analog Devices’s DIO came in at 133, which is 10 days above its five-year average, suggesting that the company’s inventory levels are higher than what we’ve seen in the past.

Gross profit margin is a key metric to track because it shows how much money a semiconductor company gets to keep after paying for its raw materials, manufacturing, and other input costs.

Analog Devices’s gross margin is one of the best in the semiconductor sector, and its strong pricing power is a direct result of its differentiated products and technological expertise. As you can see below, it averaged an elite 59.4% gross margin over the last two years. Said differently, roughly $59.45 was left to spend on selling, marketing, R&D, and general administrative overhead for every $100 in revenue.

Analog Devices produced a 63.1% gross profit margin in Q3, up 5.2 percentage points year on year. Analog Devices’s full-year margin has also been trending up over the past 12 months, increasing by 4.4 percentage points. If this move continues, it could suggest better unit economics due to more leverage from its growing sales on the fixed portion of its cost of goods sold (such as manufacturing expenses).

Operating margin is an important measure of profitability as it shows the portion of revenue left after accounting for all core expenses – everything from the cost of goods sold to advertising and wages. It’s also useful for comparing profitability across companies with different levels of debt and tax rates because it excludes interest and taxes.

Analog Devices has been an efficient company over the last two years. It was one of the more profitable businesses in the semiconductor sector, boasting an average operating margin of 24.3%. This result isn’t surprising as its high gross margin gives it a favorable starting point.

Looking at the trend in its profitability, Analog Devices’s operating margin rose by 3.5 percentage points over the last five years, as its sales growth gave it operating leverage.

This quarter, Analog Devices generated an operating margin profit margin of 30.7%, up 7.4 percentage points year on year. The increase was solid, and because its operating margin rose more than its gross margin, we can infer it was more efficient with expenses such as marketing, R&D, and administrative overhead.

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

Analog Devices’s EPS grew at an unimpressive 9.7% compounded annual growth rate over the last five years, lower than its 14.5% annualized revenue growth. However, its operating margin actually improved during this time, telling us that non-fundamental factors such as interest expenses and taxes affected its ultimate earnings.

We can take a deeper look into Analog Devices’s earnings to better understand the drivers of its performance. A five-year view shows Analog Devices has diluted its shareholders, growing its share count by 32.5%. This dilution overshadowed its increased operational efficiency and has led to lower per share earnings. Taxes and interest expenses can also affect EPS but don’t tell us as much about a company’s fundamentals.

In Q3, Analog Devices reported adjusted EPS of $2.26, up from $1.67 in the same quarter last year. This print beat analysts’ estimates by 1.1%. Over the next 12 months, Wall Street expects Analog Devices’s full-year EPS of $7.79 to grow 21.6%.

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

Analog Devices has shown terrific cash profitability, and if sustainable, puts it in an advantageous position to invest in new products, return capital to investors, and consolidate the market during industry downturns. The company’s free cash flow margin was among the best in the semiconductor sector, averaging an eye-popping 36.2% over the last two years.

Taking a step back, we can see that Analog Devices’s margin expanded by 6.2 percentage points over the last five years. This shows the company is heading in the right direction, and we can see it became a less capital-intensive business because its free cash flow profitability rose more than its operating profitability.

Analog Devices’s free cash flow clocked in at $1.49 billion in Q3, equivalent to a 48.3% margin. This result was good as its margin was 12.1 percentage points higher than in the same quarter last year, building on its favorable historical trend.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

Analog Devices historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 6%, somewhat low compared to the best semiconductor companies that consistently pump out 35%+.

Analog Devices reported $3.65 billion of cash and $8.59 billion of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $6.62 billion of EBITDA over the last 12 months, we view Analog Devices’s 0.7× net-debt-to-EBITDA ratio as safe. We also see its $212.5 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

It was great to see Analog Devices’s revenue guidance for next quarter top analysts’ expectations. We were also happy its revenue outperformed Wall Street’s estimates. Overall, this print had some key positives. The stock traded up 3.1% to $246.76 immediately following the results.

Updated: December 4, 2025 at 9:23 PM EST

Are you wondering whether to buy Analog Devices or pass? We urge investors to not only consider the latest earnings results but also longer-term business quality and valuation as well.

There are some bright spots in Analog Devices’s fundamentals, but its business quality ultimately falls short. First off, its revenue growth was impressive over the last five years and is expected to accelerate over the next 12 months. And while Analog Devices’s relatively low ROIC suggests management has struggled to find compelling investment opportunities, its powerful free cash flow generation enables it to stay ahead of the competition through consistent reinvestment of profits.

Analog Devices’s P/E ratio based on the next 12 months is 28.1x. While this valuation is reasonable, we don’t really see a big opportunity at the moment. We're pretty confident there are more exciting stocks to buy at the moment.

Wall Street analysts have a consensus one-year price target of $280.78 on the company (compared to the current share price of $277.05).