Last Update 11 Dec 25

Fair value Increased 0.61%

ADI: AI And Autos Are Expected To Drive Balanced Cyclical Recovery

We modestly lift our Analog Devices fair value estimate to $282.03 from $280.31, as analysts point to autos and AI driven upside, a strengthening cyclical recovery into 2026, and higher long term earnings power despite slightly lower near term margin assumptions.

Analyst Commentary

Street research remains broadly constructive on Analog Devices, with multiple firms lifting price targets on the back of autos strength, rising AI exposure, and confidence in a multi year cyclical recovery into 2026 and beyond. While some estimates have been trimmed at the margin, the overall message points to robust earnings power and a premium valuation supported by secular growth drivers.

Bullish Takeaways

Bullish analysts highlight autos and AI as dual engines of upside, citing share gains in high value automotive content and expanding roles in converters and power management for AI workloads as key supports for above market growth and multiple expansion.
Several firms see secular tailwinds amplifying the ongoing cyclical recovery, with commentary that Analog Devices is positioned for meaningful upside in fiscal and calendar 2026 as end market demand normalizes and bookings remain healthy.
Updated models point to best in class sales growth this year, driven by a combination of cyclical recovery, secular content gains, and product differentiation. This underpins higher long term EPS trajectories and is cited as justification for higher price targets.
Large houses such as JPMorgan and Goldman emphasize constructive management commentary and above seasonal revenue trends as evidence that the current earnings beat and raised guidance are sustainable rather than purely one off. This reinforces confidence in long run free cash flow generation.

Bearish Takeaways

Bearish analysts, while maintaining positive ratings, have trimmed price targets and slightly reduced forward estimates, reflecting more conservative assumptions on the pace of normalization and potential near term margin pressure.
Some research points out that the stock is now trading close to its long term trendline. This suggests that a portion of the recovery is already priced in and that upside from here may depend on the company moving above trend in 2026 without a sharp deceleration in year over year revenue growth.
Commentary around still subdued near term demand in parts of the semiconductor complex introduces risk that the recovery path could be uneven, leaving valuation exposed if cyclical tailwinds or customer confidence into 2026 were to soften.
There is an implicit caution that, despite strong execution, ongoing dependence on cyclical inflections in key end markets could limit multiple expansion if macro conditions deteriorate or if AI and autos growth fail to fully offset broader softness.

What's in the News

Issued first quarter fiscal 2026 guidance, forecasting revenue of $3.1 billion, plus or minus $100 million, with an expected reported operating margin of about 31 percent and adjusted EPS of $2.29, plus or minus $0.10 (Corporate guidance).
Updated on its long running share repurchase program, disclosing buybacks of roughly 2.67 million shares for $641.51 million between August 3 and November 1, 2025, and completion of 130.45 million shares repurchased in total since the June 2007 authorization (Buyback tranche update).
Launched CodeFusion Studio 2.0, a major upgrade to its open source embedded development platform that adds end to end AI workflows, model compatibility checking, performance profiling, and a Zephyr based framework for AI and machine learning deployment across ADI processors and microcontrollers (Product announcement).
Introduced ADI Power Studio, including new web based Power StudioPlanner and Power StudioDesigner tools that provide system level power tree planning, optimized component recommendations, and simulation driven efficiency analysis to shorten development cycles for power dense systems (Product announcement).

Valuation Changes

Fair Value Estimate has risen slightly to $282.03 from $280.31, reflecting modestly higher long term earnings expectations.
Discount Rate has edged down marginally to 10.70 percent from 10.73 percent, indicating a slightly lower assumed cost of capital.
Revenue Growth has ticked down slightly to 12.22 percent from 12.27 percent, pointing to a marginally more conservative top line outlook.
Net Profit Margin has fallen meaningfully to 31.42 percent from 33.04 percent, incorporating lower near term margin assumptions.
Future P/E has increased moderately to 36.75x from 34.71x, suggesting a somewhat higher valuation multiple applied to forward earnings.

Advanced automation, AI, and robotics adoption are expanding ADI's market opportunity, driving higher margins and revenue growth across industrial, automotive, and high-value technology sectors.
Strategic investments in R&D, partnerships, and capacity, combined with electrification trends and green energy, position ADI for resilient earnings and broad-based financial strength.
Rising competition, geopolitical risks, and elevated investment could squeeze margins and create volatility in revenue and earnings, especially if market conditions weaken.

Catalysts

About Analog Devices

Engages in the design, manufacture, testing, and marketing of integrated circuits (ICs), software, and subsystems products in the United States, rest of North and South America, Europe, Japan, China, and rest of Asia.What are the underlying business or industry changes driving this perspective?

The accelerating adoption of advanced robotics and automation across industrial and manufacturing sectors, including next-generation humanoid and dexterous robot systems, is expected to significantly expand ADI's addressable market and increase content per device, supporting sustained long-term revenue growth and higher average selling prices.
Increasing proliferation of connected, sensor-heavy applications-enabled by real-time edge AI, precision measurement, and automation-positions ADI to benefit from rising global demand for high-margin analog and mixed-signal solutions, bolstering net margins as industrial end markets recover and outpace broader sector seasonality.
Ongoing electrification in automotive, particularly with ADI's growing presence in EV power management and connectivity, is enabling above-industry growth and content gains, driving double-digit automotive revenue expansion and supporting consistent earnings growth despite near-term fluctuations.
Robust expansion of AI infrastructure, green energy investments, and aerospace & defense outlays is creating healthy backlog and supply-constrained opportunities in several high-value segments, likely resulting in continued revenue and profitability momentum as ADI ramps internal capacity and leverages proprietary products.
Disciplined capital allocation-with a focus on R&D, strategic partnerships (such as with NVIDIA and Teradyne), and shareholder returns-positions ADI to drive sustainable EPS growth and further enhance financial resilience as secular growth drivers unfold across its diversified end-markets.

Analog Devices Earnings and Revenue Growth

Analog Devices Future Earnings and Revenue Growth

Assumptions

How have these above catalysts been quantified?

Analysts are assuming Analog Devices's revenue will grow by 11.3% annually over the next 3 years.
Analysts assume that profit margins will increase from 18.8% today to 34.6% in 3 years time.
Analysts expect earnings to reach $4.9 billion (and earnings per share of $10.21) by about September 2028, up from $2.0 billion today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as $3.4 billion.
In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 34.6x on those 2028 earnings, down from 62.4x today. This future PE is greater than the current PE for the US Semiconductor industry at 33.5x.
Analysts expect the number of shares outstanding to decline by 0.91% per year for the next 3 years.
To value all of this in today's terms, we will use a discount rate of 10.26%, as per the Simply Wall St company report.

Analog Devices Future Earnings Per Share Growth

Risks

What could happen that would invalidate this narrative?

Rising competitive pressures in China and other global markets, especially from lower-cost or "good enough" analog providers, could erode Analog Devices' innovation premium and ASPs over time, pressuring both revenue growth and net margins.
Geopolitical and macroeconomic uncertainty-including tariffs and trade tensions between the US and China-could disrupt supply chains or limit market access, causing revenue volatility and heightened inventory and compliance costs.
Accelerating investments in internal manufacturing capacity and resilient hybrid manufacturing strategies, along with rising R&D demands for advanced robotics and automation, may increase fixed costs and capital expenditures faster than revenue growth if market demand softens, impacting net margins.
The ongoing normalization of inventory levels across end markets, and risk of potential over-shipment during periods of cyclic upturn, could result in cyclical inventory corrections and short-term revenue or earnings volatility in the future.
Automotives' exposure to regional policy risks (such as the expiration of EV credits, introduction of tariffs, and changing regulatory environments), combined with potential pull-ins and order acceleration from key OEMs, could result in near-to-medium-term revenue declines and unpredictable earnings in the segment.

Valuation

How have all the factors above been brought together to estimate a fair value?

The analysts have a consensus price target of $267.469 for Analog Devices based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $310.0, and the most bearish reporting a price target of just $155.0.
In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $14.3 billion, earnings will come to $4.9 billion, and it would be trading on a PE ratio of 34.6x, assuming you use a discount rate of 10.3%.
Given the current share price of $248.18, the analyst price target of $267.47 is 7.2% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.

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Disclaimer

AnalystConsensusTarget is a tool utilizing a Large Language Model (LLM) that ingests data on consensus price targets, forecasted revenue and earnings figures, as well as the transcripts of earnings calls to produce qualitative analysis. The narratives produced by AnalystConsensusTarget are general in nature and are based solely on analyst data and publicly-available material published by the respective companies. These scenarios are not indicative of the company's future performance and are exploratory in nature. Simply Wall St has no position in the company(s) mentioned. Simply Wall St may provide the securities issuer or related entities with website advertising services for a fee, on an arm's length basis. These relationships have no impact on the way we conduct our business, the content we host, or how our content is served to users. The price targets and estimates used are consensus data, and do not constitute a recommendation to buy or sell any stock, and they do not take account of your objectives, or your financial situation. Note that AnalystConsensusTarget's analysis may not factor in the latest price-sensitive company announcements or qualitative material.

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