Up 12% in 2024, You Might Want to Buy This Semiconductor Stock Before It Goes to the Race

Analog devices (YOU -2.47%) is not as well known in the semiconductor industry as the major players Nvidia or Taiwan Semiconductorwhich is based on the rapidly growing adoption of artificial intelligence (AI) and reports amazing growth. That explains why the chipmaker’s shares are up just 12% year-to-date, lagging behind stunning gains by some of its peers and the semiconductor sector in general.

However, a closer look at the company’s latest quarterly results and management commentary indicates that the chipmaker is on the verge of a comeback. With its offerings used in various end markets, including industrial, automotive, consumer, and aerospace and defense, among others, buying this semiconductor stock right now could be a smart thing to do from a long-term perspective .

Analog Devices is struggling, but there are signs of a revival

Analog Devices released its third quarter 2024 results (for the three months ended August 3) last month. The company’s revenue fell 25% year-over-year to $2.31 billion, while non-GAAP earnings fell 37% year-over-year to $1.58 per share .

The chipmaker’s weak year-over-year comparisons can be attributed to weak demand in nearly all of its end markets. The industrial business, for example, is Analog’s largest segment and accounts for 46% of the top line. It witnessed a 37% year-over-year drop in revenue. This is not surprising as this segment is still reeling from the impact of oversupply caused by weak demand last year.

More specifically, global semiconductor industry revenue fell 11% in 2024 as demand remained weak for smartphones, personal computers and data centers. Although AI has emerged as a savior for the semiconductor industry over the past year, Analog Devices has not been able to follow this trend as it does not manufacture graphics processing units (GPUs) like Nvidia and AMD.

However, management points out that its performance in the previous quarter was better than expected and the end markets it serves may soon start to recover.

For guidance, Analog Devices projects 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 pace of decline on its bottom line should slow as well.

These are indications that the stock correction in Analog Devices’ end markets may be nearing an end. CEO Vincent Roche noted on the latest earnings call that “improved customer inventory levels and order momentum in most of our markets increased my confidence that the second quarter marks a cyclical low for ADI.”

A potential recovery could push stocks higher

Consensus estimates indicate that Analog Devices’ revenue will decline 24% in fiscal 2024 to $9.38 billion, while its earnings are on track to decline to $6.33 per share from $10.09 per share in the previous fiscal year. However, fiscal 2025 should see a rebound, with revenue rising 10% to $10.35 billion, while the bottom line could rise nearly 20% to $7.57 per action.

Although analysts have tempered their expectations for fiscal 2026, they still forecast an acceleration in Analog’s top-line and bottom-line growth, as we can see in the chart below:

Data by YCharts.

These estimates may increase further if Analog Devices’ financial performance improves amid a recovery in its end markets. Hence, there is a good chance that this chipmaker can step on the gas and deliver more earnings in the next couple of years.