Analog Devices AI Data Center Business Accelerates; Analysts See Further Upside

Analog Devices received bullish analyst commentary following its latest quarterly results, which showed accelerating AI data center demand, broad semiconductor industry strength, and gross margin improvement.

JPMorgan analyst Harlan Sur reiterated an Overweight rating on Analog Devices and raised the December 2027 price target to $500 from the prior December 2026 target of $450. The firm called Analog Devices its top pick among broad-based diversified semiconductor companies.

TD Cowen maintained a Buy rating and $460 price target. The firm said accelerating AI demand and a continued cyclical recovery could support further upside.

AI Data Center Business Accelerates

JPMorgan said Analog Devices' data center business now accounts for roughly 80% of communications revenue and 13% of total company revenue. Optical and power sales grew more than 100% year over year.

The firm expects data center revenue to nearly double to approximately $1.9 billion in fiscal 2026. Growth of about 50% is expected next year, potentially pushing revenue toward $3 billion. That would be well above what JPMorgan believes is currently reflected in Wall Street estimates.

As data centers transition to 800-volt architectures, the opportunity could expand further. JPMorgan said the company expects content per rack to grow several-fold in 2028 and beyond. Recent design wins that have not yet generated revenue also support the long-term outlook.

TD Cowen estimates Analog Devices' broader AI data center revenue has already reached an annualized run rate exceeding $3 billion.

First Quarter Above $4 Billion

Analog Devices reported fiscal third-quarter revenue of $4.02 billion, up 40% year over year and above the $3.92 billion consensus estimate. The quarter marked the company's first time breaking $4 billion in revenue.

Communications revenue surged 84% year over year. Industrial business grew 53%, and automotive rose 16%. JPMorgan said China drove the automotive increase.

Pricing Could Push Gross Margins Higher

Analog Devices guided fiscal fourth-quarter revenue to $4.3 billion, above the roughly $4.09 billion consensus estimate. The company expects gross margin of approximately 74%, up from 72.5% in the latest quarter.

JPMorgan said favorable product mix, fixed-cost absorption, and pricing drove gross margin improvement. Additional price increases are expected to be implemented in September, which could help offset higher input costs and keep gross margins near 74% in fiscal 2027.

TD Cowen also sees room for gross margins to hold at current levels or rise further, while noting customer inventories remain low and meaningful restocking has not yet occurred.

Analog Devices Stock Performance

ADI stock performance: Analog Devices shares rose 1.21% to $377.77 on Thursday at the time of the release.