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Analog Devices' AI Data Center Momentum Builds: What Lies Ahead?
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Key Takeaways
ADI posted record revenues and earnings, fueled by AI-driven growth in data center demand.
ADI's communications revenues jumped 79% as data centers made up more than 75% of the segment.
ADI is expanding AI power capabilities through its Empower Semiconductor acquisition.
Analog Devices (ADI - Free Report) is benefiting from AI-related demand with revenues reaching a record $3.62 billion, up 37% year over year, and earnings rose to a record $3.09. The growth was supported by record demand and disciplined execution with year-over-year growth across all end markets, led by Industrial and Communications.
ADI’s Communications revenues were up 79% year over year, where the data center business accounted for more than 75% of that segment. Data center revenues grew more than 90% year over year, driven by both optical and power portfolios, which suggests ADI is benefiting from the full stack of AI infrastructure needs rather than a single product category.
Management said the business is on a steep growth trajectory and that confidence in continued growth into fiscal 2027 is increasing. As AI systems are pushing higher power density, faster data movement, and greater system complexity, ADI’s analog, mixed-signal, power and optical offerings are getting a boost.
ADI’s hybrid manufacturing model, supply-chain flexibility and long R&D cycle are helping it capture this demand surge. Given these factors, ADI is able to improve profitability. ADI’s gross margin expanded to 73% on an adjusted basis, expanding 360 basis points (bps) year over year, while adjusted operating margin reached 49%, expanding 780 bps.
ADI is also widening its AI power platform through the acquisition of Empower Semiconductor. Empower Semiconductor’s integrated voltage regulator and silicon capacitor technology as a way to reduce power footprint and improve response for volatile AI workloads, reinforcing ADI’s push from board-level power delivery toward chip-level power management.
How Competitors Fare Against ADI
Broadcom (AVGO - Free Report) is a leader in the domain of custom silicon solutions for data centers. Broadcom’s advanced 3.5D XDSiP packaging platform is critical to ensure the performance and efficiency of custom AI XPUs. Broadcom’s Semiconductor segment, which accounts for its custom silicon solutions, has experienced massive growth in the past several quarters.
Advanced Micro Devices (AMD - Free Report) is another established player in the custom silicon solutions and AI accelerator market. AMD offers semi-custom SoCs and Instinct Accelerators to power data centers. Moreover, Advanced Micro Devices’ reconfigurable Alveo Adaptable Accelerator Cards are critical for compute-intensive applications in data centers.
Seeing the growth of AI-data centers and allied networking required to run the AI workload, companies in this space, including Analog Devices, Advanced Micro Devices and Broadcom, have sufficient growth opportunities.
From a valuation standpoint, ADI trades at a forward price-to-sales ratio of 12.68X, higher than the industry’s average of 10.69X.
ADI Forward 12-Month (P/S) Valuation Chart
Image Source: Zacks Investment Research
The Zacks Consensus Estimate for ADI’s fiscal 2026 and 2027 earnings implies year-over-year growth of 29.8% and 11.8%, respectively. The consensus estimate for fiscal 2026 and 2027 has been revised upward in the past seven days.
View the Zacks #1 Rank List
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Analog Devices' AI Data Center Momentum Builds: What Lies Ahead?
Key Takeaways
Analog Devices (ADI - Free Report) is benefiting from AI-related demand with revenues reaching a record $3.62 billion, up 37% year over year, and earnings rose to a record $3.09. The growth was supported by record demand and disciplined execution with year-over-year growth across all end markets, led by Industrial and Communications.
ADI’s Communications revenues were up 79% year over year, where the data center business accounted for more than 75% of that segment. Data center revenues grew more than 90% year over year, driven by both optical and power portfolios, which suggests ADI is benefiting from the full stack of AI infrastructure needs rather than a single product category.
Management said the business is on a steep growth trajectory and that confidence in continued growth into fiscal 2027 is increasing. As AI systems are pushing higher power density, faster data movement, and greater system complexity, ADI’s analog, mixed-signal, power and optical offerings are getting a boost.
ADI’s hybrid manufacturing model, supply-chain flexibility and long R&D cycle are helping it capture this demand surge. Given these factors, ADI is able to improve profitability. ADI’s gross margin expanded to 73% on an adjusted basis, expanding 360 basis points (bps) year over year, while adjusted operating margin reached 49%, expanding 780 bps.
ADI is also widening its AI power platform through the acquisition of Empower Semiconductor. Empower Semiconductor’s integrated voltage regulator and silicon capacitor technology as a way to reduce power footprint and improve response for volatile AI workloads, reinforcing ADI’s push from board-level power delivery toward chip-level power management.
How Competitors Fare Against ADI
Broadcom (AVGO - Free Report) is a leader in the domain of custom silicon solutions for data centers. Broadcom’s advanced 3.5D XDSiP packaging platform is critical to ensure the performance and efficiency of custom AI XPUs. Broadcom’s Semiconductor segment, which accounts for its custom silicon solutions, has experienced massive growth in the past several quarters.
Advanced Micro Devices (AMD - Free Report) is another established player in the custom silicon solutions and AI accelerator market. AMD offers semi-custom SoCs and Instinct Accelerators to power data centers. Moreover, Advanced Micro Devices’ reconfigurable Alveo Adaptable Accelerator Cards are critical for compute-intensive applications in data centers.
Seeing the growth of AI-data centers and allied networking required to run the AI workload, companies in this space, including Analog Devices, Advanced Micro Devices and Broadcom, have sufficient growth opportunities.
ADI’s Price Performance, Valuation and Estimates
Shares of ADI have gained 46.4% year to date compared with the Semiconductor - Analog and Mixed industry’s growth of 62.8%.
ADI YTD Performance Chart
Image Source: Zacks Investment Research
From a valuation standpoint, ADI trades at a forward price-to-sales ratio of 12.68X, higher than the industry’s average of 10.69X.
ADI Forward 12-Month (P/S) Valuation Chart
Image Source: Zacks Investment Research
The Zacks Consensus Estimate for ADI’s fiscal 2026 and 2027 earnings implies year-over-year growth of 29.8% and 11.8%, respectively. The consensus estimate for fiscal 2026 and 2027 has been revised upward in the past seven days.
Image Source: Zacks Investment Research
ADI currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.