Manufacturer of analog chips Analog Devices (NASDAQ: ADI) reported Q3 CY2025 results topping the market’s revenue expectations, with sales up 25.9% year on year to $3.08 billion. On top of that, next quarter’s revenue guidance ($3.1 billion at the midpoint) was surprisingly good and 4.4% above what analysts were expecting. Its non-GAAP profit of $2.26 per share was 1.1% above analysts’ consensus estimates.
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Analog Devices (ADI) Q3 CY2025 Highlights:
- Revenue: $3.08 billion vs analyst estimates of $3.01 billion (25.9% year-on-year growth, 2.1% beat)
- Adjusted EPS: $2.26 vs analyst estimates of $2.23 (1.1% beat)
- Adjusted Operating Income: $1.34 billion vs analyst estimates of $1.31 billion (43.5% margin, 1.8% beat)
- Revenue Guidance for Q4 CY2025 is $3.1 billion at the midpoint, above analyst estimates of $2.97 billion
- Adjusted EPS guidance for Q4 CY2025 is $2.29 at the midpoint, above analyst estimates of $2.18
- Operating Margin: 30.7%, up from 23.3% in the same quarter last year
- Free Cash Flow Margin: 48.3%, up from 36.2% in the same quarter last year
- Inventory Days Outstanding: 133, in line with the previous quarter
- Market Capitalization: $117.8 billion
"ADI's strong fourth quarter capped a robust year of both cyclical and idiosyncratic growth," said Vincent Roche, CEO and Chair.
Company Overview
Founded by two MIT graduates, Ray Stata and Matthew Lorber in 1965, Analog Devices (NASDAQ: ADI) is one of the largest providers of high performance analog integrated circuits used mainly in industrial end markets, along with communications, autos, and consumer devices.
Revenue Growth
A company’s long-term sales performance is one signal of its overall quality. Any business can have short-term success, but a top-tier one grows for years. Over the last five years, Analog Devices grew its sales at an impressive 14.5% compounded annual growth rate. Its growth beat the average semiconductor company and shows its offerings resonate with customers. Semiconductors are a cyclical industry, and long-term investors should be prepared for periods of high growth followed by periods of revenue contractions.
Long-term growth is the most important, but short-term results matter for semiconductors because the rapid pace of technological innovation (Moore's Law) could make yesterday's hit product obsolete today. Analog Devices’s recent performance marks a sharp pivot from its five-year trend as its revenue has shown annualized declines of 5.4% over the last two years. 
This quarter, Analog Devices reported robust year-on-year revenue growth of 25.9%, and its $3.08 billion of revenue topped Wall Street estimates by 2.1%. Beyond the beat, we believe the company is still in the early days of an upcycle as this was the third consecutive quarter of growth - a typical upcycle tends to last 8-10 quarters. Company management is currently guiding for a 27.9% year-on-year increase in sales next quarter.
Looking further ahead, sell-side analysts expect revenue to grow 12.5% over the next 12 months, an improvement versus the last two years. This projection is above the sector average and suggests its newer products and services will spur better top-line performance.
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Product Demand & Outstanding Inventory
Days Inventory Outstanding (DIO) is an important metric for chipmakers, as it reflects a business’ capital intensity and the cyclical nature of semiconductor supply and demand. In a tight supply environment, inventories tend to be stable, allowing chipmakers to exert pricing power. Steadily increasing DIO can be a warning sign that demand is weak, and if inventories continue to rise, the company may have to downsize production.
This quarter, Analog Devices’s DIO came in at 133, which is 10 days above its five-year average, suggesting that the company’s inventory levels are higher than what we’ve seen in the past.
Key Takeaways from Analog Devices’s Q3 Results
It was great to see Analog Devices’s revenue guidance for next quarter top analysts’ expectations. We were also happy its revenue outperformed Wall Street’s estimates. Overall, this print had some key positives. The stock traded up 3.1% to $246.76 immediately following the results.
Sure, Analog Devices had a solid quarter, but if we look at the bigger picture, is this stock a buy? The latest quarter does matter, but not nearly as much as longer-term fundamentals and valuation, when deciding if the stock is a buy. We cover that in our actionable full research report which you can read here, it’s free for active Edge members.
