Analog Devices (NASDAQ: ADI) Not as well known in the semiconductor industry as major players like Nvidia or Taiwan SemiconductorCompanies are benefiting from the rapid adoption of AI and reporting impressive growth. That explains why the chipmaker’s shares are up just 12% so far this year, lagging the impressive gains posted by some of its peers and the semiconductor sector as a whole.
However, a closer look at the company’s latest quarterly results and management comments suggests that the chipmaker is on the cusp of a transformation. With its offerings used in a variety of end markets, including industrial, automotive, consumer, aerospace and defense, among others, buying the company semiconductor stock It might be smart to do this now from a long-term perspective.
Analog Devices is struggling, but there are signs of recovery
Analog Devices released its third-quarter fiscal 2024 results (for the three months ending August 3) last month. The company’s revenue fell 25% year-on-year to $2.31 billion, while non-oil revenue fell 25% year-on-year to $2.31 billion.generally accepted accounting principles Earnings fell 37% from the same quarter last year to $1.58 per share.
The chipmaker’s poor year-over-year comparisons can be attributed to weak demand in almost all of its end markets. For example, Analog’s largest segment, industrials, which accounts for 46% of its total revenue, saw a 37% year-over-year revenue contraction. This is not surprising since the segment is still suffering from the effects of oversupply caused by weak demand last year.
More specifically, global semiconductor industry revenues are set to decline 11% in 2024 as demand for smartphones, PCs, and data centers remains weak. Despite AI emerging as the savior of the semiconductor industry last year, Analog Devices has been unable to ride the trend because it doesn’t make graphics processing units (GPUs) like Nvidia and AMD.
However, management notes that its performance in the previous quarter was better than expected, and that the end markets it serves may begin to recover soon.
For guidance, Analog Devices expects revenue of $2.30 billion to $2.50 billion in the current quarter with adjusted earnings of $1.53 to $1.73 per share. The company’s revenue was $2.72 billion in the same quarter last year, so Analog’s year-over-year revenue decline is set to slow to 11% in the current quarter. The rate of decline in its net earnings is also expected to slow.
These are signs that Analog Devices’ end-market inventory correction may be coming to an end. “Improved customer inventory levels and order momentum in most of our markets have increased my confidence that the second quarter represents a cyclical bottom for ADI,” CEO Vincent Roche said on the latest earnings call.
A potential recovery could lead to further stock gains.
Consensus estimates suggest Analog Devices’ revenue will decline 24% in fiscal 2024 to $9.38 billion, while its earnings are expected to decline to $6.33 per share from $10.09 per share in the previous fiscal year. However, fiscal 2025 is expected to see a rebound with revenue rising 10% to $10.35 billion, while its net earnings could increase by about 20% to $7.57 per share.
Although analysts have lowered their expectations for fiscal 2026, they still expect Analog’s revenue and net profit growth to accelerate, as we can see in the chart below:
These estimates could still rise if Analog Devices’ financial performance improves on the back of a recovery in its end markets. That’s why there’s a good chance the chipmaker could post further gains over the next couple of years.
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Harash Chauhan The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Fool has Disclosure Policy.
Up 12% in 2024, You May Want to Buy This Semiconductor Stock Before It Starts to Rise Originally posted by The Motley Fool