Analog Devices
ADI
$406.24
-3.23%
Analog Devices is a leading analog, mixed-signal, and digital-signal processing chipmaker whose converter, power-management, and signal-conditioning products translate physical-world signals into digital data for tens of thousands of customers across industrial, automotive, communications, and consumer end markets. The company is the acknowledged share leader in high-performance data converters, a position built on a broad catalog of proprietary parts, deep application engineering, and switching costs that make it a classic wide-moat analog franchise rather than a commodity supplier. The current investor narrative centers on a powerful cyclical recovery: revenue grew roughly 40% year over year in the August 2026 quarter, gross margins have climbed back above 67%, and management has pivoted the story toward AI data-center power and energy-efficiency bottlenecks, underscored by a roughly $1.5 billion acquisition aimed at AI power management. That recovery, combined with a stock that has nearly doubled over the past year, has made valuation the central debate — bulls point to accelerating industrial and automotive demand and a strong-buy consensus, while skeptics flag a trailing P/E above 50x and a payout ratio near 85% of earnings.…
ADI
Analog Devices
$406.24
Related headlines
Investment Opinion: Should I buy ADI Today?
Rating: Hold, with a constructive bias toward accumulating on weakness. The core thesis is that Analog Devices is a high-quality wide-moat analog franchise in the middle innings of a genuine cyclical recovery — revenue up 39.6% YoY to $4.02 billion, gross margin at 67.3%, operating margin at 40.1% — but after a 79.7% one-year gain the stock already discounts much of that recovery, leaving only ~12.5% upside to the $472.44 average target against ~13% downside to the $365 low target. The strong_buy consensus (30 buys, 4 holds, 0 sells, mean rating 1.41) is a statement about business quality, not near-term price return.
Supporting evidence is genuinely strong on the fundamentals: revenue accelerated sequentially across four quarters ($3.08B, $3.16B, $3.62B, $4.02B), gross margin expanded from 62.1% to 67.3% YoY, operating margin from 28.4% to 40.1%, and net income more than doubled to $1.34 billion from $519 million. The balance sheet is fortress-grade with debt-to-equity of 0.256, a current ratio of 2.19, and $4.94 billion of trailing free cash flow, including $1.46 billion generated in the August quarter against just $146 million of capex — enough to fund $1.16 billion of buybacks, $535 million of dividends, and a $1.50 billion AI power-management acquisition from internal cash. On valuation, the trailing P/E of 51.0x looks rich but the forward P/E of 25.4x on consensus EPS of $23.90 and a PEG of 1.30 are close to the stock's long-run average, implying earnings roughly double as the cycle matures; the premium to peers (10.5x sales, 24.2x EV/EBITDA versus 15-18x typical for large-cap analog) is defensible on 67% gross margins but leaves no room for error.
The biggest risks that could invalidate the thesis are: (1) a cyclical rollover in industrial (~35% of revenue) and automotive (~21%) that compresses gross margin back toward the low-60s and forces estimate cuts; (2) multiple compression on a 51x trailing P/E for a cyclical name, amplified by a beta of 1.256 and already-evident consolidation (six-month relative strength of -0.35% versus the S&P 500); and (3) competitive pressure from Texas Instruments, whose data-center sales doubled YoY with management expecting to outgrow the market in 2026, contesting the AI power opportunity ADI is targeting. This Hold would upgrade to Buy if the stock pulled back toward the $365-$380 zone (roughly the low analyst target and the July low of $353.37) while forward EPS estimates held, or if gross margin pushed above 68-69% with industrial and automotive growth sustaining above 20%; it would downgrade to Sell if revenue growth decelerated below 15% or gross margin slipped back under 64%. Verdict: fairly valued to modestly overvalued relative to history and peers — a premium-quality business trading at a premium price, best owned on pullbacks rather than chased at 88% of its 52-week range.
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ADI 12-Month Price Forecast
The fundamental trajectory is excellent — accelerating revenue, elite and expanding margins, $4.94 billion of trailing free cash flow, and a fortress balance sheet — and the forward valuation of 25.4x with a 1.30 PEG is reasonable for a wide-moat analog leader. The problem is timing and price: after a 79.7% one-year run the stock sits at 88% of its 52-week range, six-month relative strength has gone flat at -0.35%, and the consensus upside of ~12.5% is roughly matched by the ~13% downside to the low target, an unattractive asymmetry. The strong_buy consensus reflects business quality more than near-term return potential, and the unusually wide $365-$675 target range signals real disagreement about cycle durability. I would upgrade to bullish on a pullback toward the $365-$380 zone with estimates intact, or on gross margin breaking above 68-69% with sustained 20%+ industrial and automotive growth; I would downgrade to bearish if revenue growth fell below 15% or gross margin slipped under 64%.
Wall Street consensus
Most Wall Street analysts maintain a constructive view on Analog Devices's 12-month outlook, with a consensus price target around $472.44 and implied upside of +16.3% versus the current price.
Average Target
$472.44
34 analysts
Implied Upside
+16.3%
vs. current price
Analyst Count
34
covering this stock
Price Range
$365 - $675
Analyst target range
Coverage is deep and overwhelmingly bullish: 32 analysts rate the stock, with 30 buys, 4 holds, and zero sells, producing a consensus recommendation of strong_buy and a mean rating of 1.41 on a 1-to-5 scale. The average target price of $472.44 implies roughly 12.5% upside from the current $419.79, and consensus estimates call for EPS of $23.90 and revenue of $25.1 billion, consistent with the forward P/E of 25.4x. The institutional ratings flow reinforces the positive tone — Seaport Global and Bernstein both upgraded to Buy/Outperform in August 2026, and firms including TD Cowen, Baird, BMO, Wells Fargo, Morgan Stanley, Needham, and JP Morgan have reiterated Buy or Overweight ratings through October, with no downgrades in the visible record.\n\nThe target range is unusually wide, from $365 to $675, a spread of more than 80% that signals genuine disagreement about the durability of the cycle. The $675 high target implies multiple expansion on top of peak-cycle earnings — effectively pricing in a sustained AI-driven analog supercycle and continued margin expansion beyond the current 67% gross margin; the $365 low target, roughly 13% below the current price, assumes the recovery fades, margins compress back toward the low-60s, and the stock de-rates toward a market multiple. With the stock already up 79.7% in a year and trading at 88% of its 52-week range, the risk/reward is asymmetric: the consensus upside of about 12.5% is modest relative to the downside implied by the low target and the 20.7% maximum drawdown already experienced, making the strong-buy consensus a statement about business quality more than near-term price return.
Bulls vs Bears: ADI Investment Factors
The bull case currently has stronger evidence: revenue is accelerating at 39.6% YoY, gross margins have climbed to 67.3%, operating margin has expanded to 40.1%, and 30 of 32 analysts rate the stock a buy. The bear case rests almost entirely on price rather than business deterioration — a 51x trailing P/E, a 10.5x sales multiple versus mid-single-digit peers, and only ~12.5% upside to the average target after a 79.7% one-year gain. The single most important tension is whether the analog recovery is a durable multiyear upcycle (justifying the forward 25.4x multiple) or a cyclical peak (which would compress the 51x trailing multiple sharply). How the industrial and automotive recovery — more than half of sales — holds up over the next two to three quarters will determine which side wins.
Bullish
- Revenue reaccelerating at ~40% YoY: August 2026 quarter revenue of $4.02 billion grew 39.6% year over year versus $2.88 billion a year earlier, and the sequential cadence ($3.08B, $3.16B, $3.62B, $4.02B) shows growth accelerating each quarter rather than plateauing. This is the signature of an early-to-mid analog upcycle, not a late-cycle bounce.
- Elite margins expanding fast: Gross margin reached 67.3% in the August quarter versus 62.1% a year earlier, and operating margin jumped to 40.1% from 28.4%, lifting net income to $1.34 billion from $519 million. Net margin expanded from 26.3% to 32.5% to 33.3% across the last three quarters, demonstrating powerful operating leverage as fab utilization recovers.
- Forward valuation far more reasonable: While the trailing P/E of 51.0x looks rich, the forward P/E of 25.4x on consensus EPS of $23.90 implies earnings roughly doubling as the cycle matures, and the PEG of 1.30 suggests growth is being paid for at a fair price. The 25.4x forward multiple is close to the stock's long-run average, meaning valuation normalizes quickly if estimates are met.
- Fortress balance sheet and cash generation: Debt-to-equity is just 0.256, the current ratio is 2.19, and trailing free cash flow is $4.94 billion, including $1.46 billion generated in the August quarter against only $146 million of capex. The company funded $1.16 billion of buybacks, $535 million of dividends, and a $1.50 billion acquisition from internal cash generation.
Bearish
- Trailing P/E of 51x on a cyclical: At 51.0x trailing earnings, ADI trades in the upper-middle of its historical 20x-to-80x band, a multiple that assumes the recovery continues uninterrupted. If the analog upcycle stalls, a 51x multiple on a cyclical name can compress sharply, and the stock already sits at 88% of its 52-week range of $223.47 to $445.91.
- Premium to peers leaves no margin for error: Price-to-sales of 10.5x, EV/sales of 15.1x, and EV/EBITDA of 24.2x are well above the mid-single-digit sales multiples and 15-18x EBITDA range typical of large-cap analog peers. The premium is defensible on 67% gross margins and the converter franchise, but it leaves little room for execution error.
- Asymmetric risk/reward after 80% run: The stock is up 79.7% over one year and 53.4% year to date, leaving only about 12.5% upside to the $472.44 average target versus roughly 13% downside to the $365 low target. The 20.7% maximum drawdown already experienced shows how sharp the air pockets can be, and the 52-week high is only about 6% above the current price.
- Payout ratio near 85% of earnings: The 84.9% payout ratio leaves limited dividend headroom, and the 1.66% yield offers little income support in a drawdown. While covered by free cash flow, the thin cushion means dividend growth is constrained if earnings growth decelerates.
ADI Technical Analysis
Analog Devices is in a powerful, sustained uptrend: the stock is up 79.7% over the past year and 53.4% year to date, and at $419.79 it sits at roughly 88% of its 52-week range of $223.47 to $445.91. That positioning near the upper end of the range signals momentum leadership rather than a value opportunity, but it also means the stock is extended and vulnerable to profit-taking, particularly with the 52-week high only about 6% above the current price. The 20.7% maximum drawdown over the period shows this has been a volatile advance rather than a smooth one, with sharp air pockets along the way.\n\nShort-term momentum is positive but decelerating relative to the longer-term trend: the stock is up 0.63% over the past month and 11.1% over three months, versus the 79.7% one-year gain, a classic pattern of consolidation after a big run. The one-month figure also masks a sharp intraperiod swing — the stock fell from $445.48 on June 22 to $353.37 on July 29 before recovering to $419.79 — and the recent push from roughly $385 on October 22 to $433.28 on October 29 shows buyers reasserting control. Relative strength remains the key tell: ADI has outperformed the S&P 500 by 2.6 percentage points over one month, 13.2 points over three months, and 69.3 points over one year, even as the six-month relative strength of -0.35% shows the stock has merely tracked the market since spring.\n\nKey technical levels are well defined: support sits at the 52-week low of $223.47, with a nearer intermediate floor around the July low of $353.37, while resistance is the 52-week high of $445.91. A breakout above $445.91 would confirm the uptrend and likely trigger momentum-driven buying, whereas a breakdown below $353 would break the pattern of higher lows and signal a trend reversal. Volatility is meaningfully above market: beta of 1.256 implies roughly 26% more volatility than the S&P 500, so position sizing should account for wider swings, and the 3.18 short ratio (about three days of volume to cover) suggests short interest is modest and not a major squeeze catalyst.
Beta
1.26
1.26x market volatility
Max Drawdown
-20.7%
Largest decline past year
52-Week Range
$223-$446
Price range past year
Annual Return
+77.1%
Cumulative gain past year
| Period | ADI Return | S&P 500 |
|---|---|---|
| 1m | -3.1% | -1.0% |
| 3m | +7.7% | -0.2% |
| 6m | -2.5% | +4.0% |
| 1y | +77.1% | +13.6% |
| ytd | +48.4% | +12.4% |
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ADI Fundamental Analysis
Revenue is in a clear, accelerating recovery: the August 2026 quarter delivered $4.02 billion, up 39.6% year over year, following $3.62 billion in the May quarter and $3.16 billion in the January quarter, versus $2.88 billion in the year-ago August quarter. The sequential cadence — roughly $3.08 billion, $3.16 billion, $3.62 billion, $4.02 billion across the last four reported quarters — shows growth reaccelerating each period rather than plateauing. Segment data for the latest quarter shows industrial at $1.41 billion (about 35% of revenue), automotive at $845 million (about 21%), consumer at $422 million, and communications at $400 million, confirming that the industrial and automotive end markets — more than half of sales — are the engines of the rebound. This trajectory supports the bull case that ADI is early in a multiyear analog upcycle tied to automation, electrification, and AI infrastructure.\n\nProfitability has expanded sharply: net income reached $1.34 billion in the August quarter on a 67.3% gross margin, up from $519 million and a 62.1% gross margin a year earlier, while operating margin rose to 40.1% from 28.4%. The sequential march is equally impressive — gross margin climbed from 64.7% in January to 67.3% in May to 67.3% in August, and net margin expanded from 26.3% to 32.5% to 33.3% over the same span. These are elite margins for the semiconductor industry, reflecting pricing power in high-performance analog and operating leverage as fab utilization recovers; the 26.6% operating margin and 20.6% net margin reported in the summary valuation data are trailing figures that understate the current run-rate.\n\nThe balance sheet is conservatively managed and cash-generative: debt-to-equity is just 0.256, the current ratio is 2.19, and trailing free cash flow is $4.94 billion, with $1.46 billion generated in the August quarter alone against $146 million of capex. The company returned substantial capital in the quarter — $1.16 billion of buybacks and $535 million of dividends — while still funding a $1.50 billion acquisition, demonstrating internal cash generation rather than reliance on external financing. The caveats are a modest 6.7% ROE and 6.4% ROA on a trailing basis (depressed by the trough of the cycle and a large goodwill base from prior deals) and a payout ratio of 84.9%, which leaves limited dividend headroom but is comfortably covered by free cash flow.
Quarterly Revenue
$4.0B
2026-08
Revenue YoY Growth
+39.6%
YoY Comparison
Gross Margin
67.3%
Latest Quarter
Free Cash Flow
$4.9B
Last 12 Months
Revenue & Net Income Trends (2 Years)
Revenue Breakdown
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Valuation Analysis: Is ADI Overvalued?
Because Analog Devices is solidly profitable — $1.34 billion of net income in the latest quarter — the P/E ratio is the appropriate primary metric. On trailing earnings the stock trades at 51.0x, but on forward estimates it commands just 25.4x, a roughly 50% compression that implies the market expects earnings to roughly double as the cycle matures; the PEG ratio of 1.30 suggests that growth is being paid for at a broadly reasonable price rather than a bubble multiple.\n\nRelative to the semiconductor industry, ADI screens as a premium asset: its 10.5x price-to-sales and 15.1x EV/sales are rich versus the sector's typical mid-single-digit sales multiples, and its 24.2x EV/EBITDA is above the roughly 15-18x range common for large-cap analog peers. The premium is defensible on quality grounds — 67% gross margins, 40% operating margins, and a converter franchise with few true competitors — but it leaves little room for execution error, and the 3.42x price-to-book is far below the 5.34x book multiple recorded at the August quarter-end, reflecting the stock's re-rating against a growing equity base.\n\nHistorically, ADI's P/E has ranged from roughly 20x at cycle troughs (late 2022) to over 80x at earnings nadirs (mid-2024), and the current 51.0x trailing multiple sits in the upper-middle of that band, consistent with a market pricing in an earnings recovery that is still unfolding. The forward P/E of 25.4x is far more moderate and closer to the stock's long-run average, implying that if estimates are met the valuation normalizes quickly; the risk is that a 51x trailing multiple on a cyclical name compresses sharply if the analog upcycle stalls.
PE
51.0x
Latest Quarter
vs. Historical
Mid-Range
5-Year PE Range 20x~82x
vs. Industry Avg
52.7x
Industry PE ~52.7x*
EV/EBITDA
24.2x
Enterprise Value Multiple
Investment Risk Disclosure
Financial and operational risks center on the cyclicality of a 51.0x trailing P/E that depends on continued earnings growth to justify itself; the forward 25.4x multiple assumes EPS roughly doubles to $23.90, and any shortfall would leave the stock exposed. Revenue concentration is meaningful — industrial at $1.41 billion (about 35%) and automotive at $845 million (about 21%) together exceed half of sales — so a slowdown in either end market would hit the recovery thesis directly. The 84.9% payout ratio limits dividend flexibility, and trailing ROE of 6.7% and ROA of 6.4% remain depressed by the cycle trough and a large goodwill base, meaning reported returns still understate the run-rate but offer little cushion if margins roll over.
Market and competitive risks are dominated by valuation compression: at 10.5x sales and 24.2x EV/EBITDA versus the 15-18x EBITDA range common for large-cap analog peers, ADI carries a premium that assumes flawless execution. Beta of 1.256 means roughly 26% more volatility than the S&P 500, so a sector rotation out of semis would hit ADI harder than the market, and the six-month relative strength of -0.35% shows the stock has already stopped outperforming since spring. Competitive pressure from Texas Instruments — whose data-center sales doubled year over year with management expecting to outgrow the market in 2026 — highlights that the AI power-management opportunity ADI is targeting with its $1.5 billion acquisition is contested, not exclusive.
The worst-case scenario is a classic cyclical peak: industrial and automotive orders roll over, gross margin compresses back toward the low-60s, and the 51x trailing multiple de-rates toward a market multiple, producing the $365 low analyst target — roughly 13% below the current $419.79. A deeper drawdown toward the July low of $353.37 would represent about -16%, and a full retracement to the 52-week low of $223.47 would mean roughly -47% from current levels, consistent with the 20.7% maximum drawdown already experienced in this volatile advance. The realistic adverse case is a 15-25% decline to the $315-$355 zone if the recovery stalls and estimates are cut.
FAQ
Ranked by severity: first, cyclical/end-market risk — industrial ($1.41 billion, ~35% of revenue) and automotive ($845 million, ~21%) together exceed half of sales, so a rollover in either would directly hit the recovery thesis and could compress gross margin from 67.3% back toward the low-60s. Second, valuation-compression risk — a 51.0x trailing P/E on a cyclical name, with beta of 1.256 amplifying market moves and six-month relative strength already flat at -0.35% versus the S&P 500, means a sector rotation out of semis would hit ADI harder than the market. Third, competitive risk — Texas Instruments' data-center sales doubled YoY with management expecting to outgrow the market in 2026, contesting the AI power-management opportunity ADI is targeting with its $1.5 billion acquisition. Fourth, company-specific financial risk — an 84.9% payout ratio limits dividend headroom, and trailing ROE of 6.7% and ROA of 6.4% remain depressed by the cycle trough and a large goodwill base, offering little cushion if margins roll over.
The scenario framework assigns a 55% probability to the base case of $440-$500, in which revenue growth decelerates from ~40% toward the high-teens, gross margin holds in the 66-68% band, EPS tracks toward the $23.90 consensus, and the stock grinds toward the $472.44 average target as the forward multiple of 25.4x holds near its long-run average. The 25% bear case targets $315-$365 (with the $365 low analyst target about 13% below current and the July low of $353.37 about -16%), assuming industrial and automotive orders roll over, margins compress toward the low-60s, and the 51x trailing multiple de-rates. The 20% bull case targets $540-$675, requiring gross margin above 68-69%, sustained 20%+ industrial and automotive growth, and AI power design wins converting ahead of plan. The base case is most likely, and its key assumption is that the analog recovery matures rather than reverses — that consensus EPS of $23.90 and revenue of $25.1 billion are broadly met without a major end-market rollover.
The answer depends on which multiple you anchor to. On trailing earnings ADI looks expensive at 51.0x, in the upper-middle of its historical 20x-to-80x band, and its 10.5x price-to-sales, 15.1x EV/sales, and 24.2x EV/EBITDA sit above the mid-single-digit sales multiples and 15-18x EBITDA range typical of large-cap analog peers. On forward earnings, however, the stock trades at just 25.4x on consensus EPS of $23.90 — roughly half the trailing multiple — with a PEG of 1.30, implying the market expects earnings to roughly double as the cycle matures and that growth is being paid for at a broadly fair price. The market is therefore paying a premium for quality (67% gross margins, a converter franchise with few true competitors) but not an unreasonable one if estimates are met. Verdict: fairly valued to modestly overvalued relative to history and peers — a premium business at a premium price, where the 51x trailing multiple leaves little room for a cyclical stumble.
From a pure risk/reward standpoint the setup is balanced rather than compelling: at $419.79 the stock offers about 12.5% upside to the $472.44 average analyst target but roughly 13% downside to the $365 low target, and it already trades at 88% of its $223.47-$445.91 52-week range after a 79.7% one-year gain. The business quality is exceptional — 67.3% gross margin, 40.1% operating margin, $4.94 billion of trailing free cash flow, and a debt-to-equity of just 0.256 — and 30 of 32 analysts rate it a buy with a 1.41 mean rating. The biggest downside risk is a cyclical rollover in industrial and automotive (over half of sales) that compresses margins and de-rates the 51.0x trailing P/E. It is a good buy for long-term investors with a multiyear horizon who can tolerate a beta of 1.256 and are willing to accumulate on weakness toward the $365-$380 zone; it is a less attractive entry for short-term buyers at current levels given the modest consensus upside and the 20.7% maximum drawdown already experienced this year.
ADI is fundamentally a long-term holding: it is a wide-moat analog franchise with a converter share lead, 67.3% gross margins, $4.94 billion of trailing free cash flow, and a fortress balance sheet (debt-to-equity 0.256, current ratio 2.19) that supports a multiyear compounding thesis tied to automation, electrification, and AI infrastructure. The stock is not suited to short-term trading at current levels — it is up 79.7% in a year, sits at 88% of its 52-week range, has a beta of 1.256 (roughly 26% more volatile than the S&P 500), and has already shown a 20.7% maximum drawdown with a sharp swing from $445.48 on June 22 to $353.37 on July 29. The 1.66% dividend yield with an 84.9% payout ratio provides minimal income support, so returns depend on earnings growth and multiple stability rather than cash distributions. A concrete suggested minimum holding period is two to three years — long enough for the forward 25.4x multiple to normalize through earnings growth toward the $23.90 consensus EPS — with position sizing that accounts for the wider volatility band.