Manufacturer of analog chips Analog Devices (NASDAQ: ADI) announced better-than-expected revenue in Q2 CY2025, with sales up 24.6% year on year to $2.88 billion. On top of that, next quarter’s revenue guidance ($3 billion at the midpoint) was surprisingly good and 6.4% above what analysts were expecting. Its non-GAAP profit of $2.05 per share was 5.1% above analysts’ consensus estimates.
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Analog Devices (ADI) Q2 CY2025 Highlights:
- Revenue: $2.88 billion vs analyst estimates of $2.76 billion (24.6% year-on-year growth, 4.3% beat)
- Adjusted EPS: $2.05 vs analyst estimates of $1.95 (5.1% beat)
- Adjusted Operating Income: $1.22 billion vs analyst estimates of $1.16 billion (42.2% margin, 5.1% beat)
- Revenue Guidance for Q3 CY2025 is $3 billion at the midpoint, above analyst estimates of $2.82 billion
- Adjusted EPS guidance for Q3 CY2025 is $2.22 at the midpoint, above analyst estimates of $2.03
- Operating Margin: 28.4%, up from 21.2% in the same quarter last year
- Free Cash Flow Margin: 0%, down from 30.3% in the same quarter last year
- Inventory Days Outstanding: 133, down from 135 in the previous quarter
- Market Capitalization: $114.4 billion
"Despite geopolitical challenges, ADI's third-quarter revenue and earnings per share exceeded the high end of our expectations," stated CEO and Chair Vincent Roche.
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
Examining a company’s long-term performance can provide clues about its quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Thankfully, Analog Devices’s 13.5% annualized revenue growth over the last five years was impressive. 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.
We at StockStory place the most emphasis on long-term growth, but within semiconductors, a half-decade historical view may miss new demand cycles or industry trends like AI. Analog Devices’s recent performance marks a sharp pivot from its five-year trend as its revenue has shown annualized declines of 10.1% over the last two years. 
This quarter, Analog Devices reported robust year-on-year revenue growth of 24.6%, and its $2.88 billion of revenue topped Wall Street estimates by 4.2%. Company management is currently guiding for a 22.8% year-on-year increase in sales next quarter.
Looking further ahead, sell-side analysts expect revenue to grow 11.7% over the next 12 months, an improvement versus the last two years. This projection is particularly noteworthy for a company of its scale and indicates 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 11 days above its five-year average. These numbers suggest that despite the recent decrease, the company’s inventory levels are higher than what we’ve seen in the past.
Key Takeaways from Analog Devices’s Q2 Results
It was great to see Analog Devices’s revenue guidance for next quarter top analysts’ expectations. We were also glad its adjusted operating income outperformed Wall Street’s estimates. Zooming out, we think this was a solid print. The stock traded up 4% to $239.84 immediately following the results.
Indeed, Analog Devices had a rock-solid quarterly earnings result, but is this stock a good investment here? When making that decision, it’s important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it’s free.
