We use cookies to understand how you use our site and to improve your experience.
This includes personalizing content and advertising.
By pressing "Accept All" or closing out of this banner, you consent to the use of all cookies and similar technologies and the sharing of information they collect with third parties.
You can reject marketing cookies by pressing "Deny Optional," but we still use essential, performance, and functional cookies.
In addition, whether you "Accept All," Deny Optional," click the X or otherwise continue to use the site, you accept our Privacy Policy and Terms of Service, revised from time to time.
You are being directed to ZacksTrade, a division of LBMZ Securities and licensed broker-dealer. ZacksTrade and Zacks.com are separate companies. The web link between the two companies is not a solicitation or offer to invest in a particular security or type of security. ZacksTrade does not endorse or adopt any particular investment strategy, any analyst opinion/rating/report or any approach to evaluating individual securities.
If you wish to go to ZacksTrade, click OK. If you do not, click Cancel.
Can Analog Devices Sustain Margin Expansion Throughout 2026?
Read MoreHide Full Article
Key Takeaways
ADI's Q2 fiscal 2026 gross margin rose to 73% from 69.4%, while operating margin reached 49%.
ADI's Industrial segment, 50% of revenue, grew 56% year over year and 20% sequentially.
ADI's Data Center revenues jumped more than 90%, driven by demand for AI infrastructure solutions.
Analog Devices’ (ADI - Free Report) margins have been improving for the past several quarters. In the second quarter of fiscal 2026, ADI posted a gross margin of 73%, up from 69.4% in the year-ago quarter. ADI’s adjusted operating margin was 49% in the second quarter of fiscal 2026 compared with 41.2% in the previous year quarter.
The pattern has remained similar for the past six months, suggesting Analog Devices’ strong, profitable business model across segments. ADI has been riding on a combination of a favorable business mix, higher factory utilization, pricing strength and disciplined operational execution.
The company’s growth is accelerating, driven by ADI's highest-value markets, including Industrial, Aerospace & Defense, Automated Test Equipment (ATE), Electronic Test & Measurement (ETM), Data Center, and advanced Automotive applications. These businesses typically command premium pricing due to their performance requirements, long product lifecycles and mission-critical nature.
Industrial remains ADI's most profitable business and was the primary growth engine during the quarter. It accounted for 50% of revenues. Industrial grew 56% year over year and 20% sequentially. Management highlighted Aerospace & Defense, ATE, ETM, and the broad market business as key contributors.
Importantly, Industrial businesses beyond ATE and Aerospace grew more than 40% during the first half of fiscal 2026, indicating broad-based strength across automation, energy, healthcare and industrial automation markets. Communications was the fastest-growing end market, increasing 79% year over year. Within this segment, Data Center revenues surged more than 90%, driven by strong demand for ADI's optical and power solutions supporting AI infrastructure.
Management described both the Data Center and ATE businesses as being on steep growth trajectories with confidence extending into 2027. Overall, ADI's margin expansion is being fueled by rapid growth in its highest-margin, most differentiated businesses, creating a powerful combination of revenue acceleration and operating leverage.
How Competitors Fare Against Analog Devices
Analog Devices competes with Texas Instruments (TXN - Free Report) in the industrial segment and with Broadcom (AVGO - Free Report) in the communications segment, which are also two of ADI’s strongest segments in terms of revenue growth and profit margin.
Texas Instruments competes with ADI in industrial signal chains, precision sensing and power management, especially in PLCs, factory automation and motor control. STMicroelectronics competes in industrial MCUs, motor drivers, sensors and automation systems. In the Communications segment, Texas Instruments competes with ADI in analog/mixed-signal, RF front-ends, power amp/driver ICs, ADCs/DACs in infrastructure and wireless systems.
Broadcom is strong in networking, data center, broadband, Wi-Fi, Ethernet PHYs and switches. In the communications segment, Broadcom mainly competes with its high-speed connectivity, optical / wireline networking equipment and cable or broadband IC portfolio. Despite strong competition from Texas Instruments and Broadcom, Analog Devices has enough scope to grow in the communications space as new 5G technology is being introduced, which gives scope for expansion to all the players.
ADI’s Price Performance, Valuation and Estimates
Shares of ADI have gained 60.2% year to date compared with the Zacks Semiconductor - Analog and Mixed industry’s growth of 69.7%.
ADI YTD Performance Chart
Image Source: Zacks Investment Research
From a valuation standpoint, ADI trades at a forward price-to-sales ratio of 13.43X, higher than the industry’s average of 10.88X.
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 59% and 14%, respectively. The consensus estimate for fiscal 2025 and 2026 has remained unchanged in the past 30 days.
View the Zacks #1 Rank List
Image: Bigstock
Can Analog Devices Sustain Margin Expansion Throughout 2026?
Key Takeaways
Analog Devices’ (ADI - Free Report) margins have been improving for the past several quarters. In the second quarter of fiscal 2026, ADI posted a gross margin of 73%, up from 69.4% in the year-ago quarter. ADI’s adjusted operating margin was 49% in the second quarter of fiscal 2026 compared with 41.2% in the previous year quarter.
The pattern has remained similar for the past six months, suggesting Analog Devices’ strong, profitable business model across segments. ADI has been riding on a combination of a favorable business mix, higher factory utilization, pricing strength and disciplined operational execution.
The company’s growth is accelerating, driven by ADI's highest-value markets, including Industrial, Aerospace & Defense, Automated Test Equipment (ATE), Electronic Test & Measurement (ETM), Data Center, and advanced Automotive applications. These businesses typically command premium pricing due to their performance requirements, long product lifecycles and mission-critical nature.
Industrial remains ADI's most profitable business and was the primary growth engine during the quarter. It accounted for 50% of revenues. Industrial grew 56% year over year and 20% sequentially. Management highlighted Aerospace & Defense, ATE, ETM, and the broad market business as key contributors.
Importantly, Industrial businesses beyond ATE and Aerospace grew more than 40% during the first half of fiscal 2026, indicating broad-based strength across automation, energy, healthcare and industrial automation markets. Communications was the fastest-growing end market, increasing 79% year over year. Within this segment, Data Center revenues surged more than 90%, driven by strong demand for ADI's optical and power solutions supporting AI infrastructure.
Management described both the Data Center and ATE businesses as being on steep growth trajectories with confidence extending into 2027. Overall, ADI's margin expansion is being fueled by rapid growth in its highest-margin, most differentiated businesses, creating a powerful combination of revenue acceleration and operating leverage.
How Competitors Fare Against Analog Devices
Analog Devices competes with Texas Instruments (TXN - Free Report) in the industrial segment and with Broadcom (AVGO - Free Report) in the communications segment, which are also two of ADI’s strongest segments in terms of revenue growth and profit margin.
Texas Instruments competes with ADI in industrial signal chains, precision sensing and power management, especially in PLCs, factory automation and motor control. STMicroelectronics competes in industrial MCUs, motor drivers, sensors and automation systems. In the Communications segment, Texas Instruments competes with ADI in analog/mixed-signal, RF front-ends, power amp/driver ICs, ADCs/DACs in infrastructure and wireless systems.
Broadcom is strong in networking, data center, broadband, Wi-Fi, Ethernet PHYs and switches. In the communications segment, Broadcom mainly competes with its high-speed connectivity, optical / wireline networking equipment and cable or broadband IC portfolio. Despite strong competition from Texas Instruments and Broadcom, Analog Devices has enough scope to grow in the communications space as new 5G technology is being introduced, which gives scope for expansion to all the players.
ADI’s Price Performance, Valuation and Estimates
Shares of ADI have gained 60.2% year to date compared with the Zacks Semiconductor - Analog and Mixed industry’s growth of 69.7%.
ADI YTD Performance Chart
Image Source: Zacks Investment Research
From a valuation standpoint, ADI trades at a forward price-to-sales ratio of 13.43X, higher than the industry’s average of 10.88X.
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 59% and 14%, respectively. The consensus estimate for fiscal 2025 and 2026 has remained unchanged in the past 30 days.
Image Source: Zacks Investment Research
ADI currently sports a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.