Analog Devices highlighted strong AI power growth runway during its Q3 earnings call, citing rising demand for high-efficiency power delivery systems.
Analog Devices used its fiscal third-quarter earnings call to frame AI infrastructure power and connectivity as multiyear growth engines, alongside a broader cyclical recovery. Third-quarter results topped the Zacks Consensus Estimate on both adjusted earnings and revenues, though management directed attention toward expanding data center content, fourth-quarter momentum, and fiscal 2027 growth drivers.
Vincent Roche, CEO and chair, noted that power availability has emerged as a central constraint in AI infrastructure development. Analog Devices is targeting opportunities spanning grid monitoring and energy storage through to rack and processor power. Roche stated that the company’s 2030 data center and energy serviceable addressable market has more than doubled compared to its assessment a year ago, with the energy business already exceeding $500 million. In optics, Roche indicated that optical circuit switching revenue is positioned to approximately double this year, with similar growth targeted for fiscal 2027. Additionally, the Empower platform extends Analog Devices’ power capabilities directly into processor packages.
Richard Puccio, executive vice president and CFO, guided fiscal fourth-quarter revenues to $4.3 billion, plus or minus $100 million. Adjusted operating margin is expected at 52%, plus or minus 100 basis points, with adjusted earnings per share projected at $3.86, plus or minus 15 cents. For the completed third quarter, adjusted earnings were $3.45 per share compared with the Zacks Consensus Estimate of $3.33. Revenues reached $4.02 billion versus the $3.92 billion consensus, representing a 40% year-over-year increase and an 11% sequential rise.
Puccio anticipates adjusted gross margin will rise approximately 150 basis points to roughly 74% in the fourth quarter, driven by favorable product mix, fixed-cost absorption, and pricing initiatives. He noted that some recently announced pricing actions will have a fuller impact in the fiscal first quarter. On segment performance, Puccio reported that communications revenues rose 84% year over year, with data center now accounting for 80% of that business. Within data center, both optical and power revenues grew more than 100%. When a Bernstein analyst asked whether communications could sustain that pace into fiscal 2027, Jeff Ambrosi, head of investor relations and senior director, declined to provide a specific long-term growth rate, instead emphasizing rising analog content and targeted share gains. Roche added that the data center segment is on pace to nearly double in fiscal 2026, with strong double-digit growth expected through at least 2030. Ambrosi previously told Jefferies that advanced test equipment plus data center together represent approximately 20% of Analog Devices.
Addressing broader portfolio composition, a BofA Securities analyst pressed management on secular growth, cyclical recovery, and pricing dynamics. Roche clarified that aerospace and defense, advanced test equipment, and data center combined account for approximately 30% of the company. Looking ahead, Roche expects Maxim-related synergies of about $700 million this year and more than $1 billion in fiscal 2027. Puccio observed that customers remain lean on inventory, with no meaningful restocking activity underway, and noted that much of the broader business still operates below historical consumption levels. Despite these near-term conditions, Roche expects solid fiscal 2027 growth while cautioning about macroeconomic and geopolitical risks, potential interest rate increases, financial-market volatility, and possible reductions in AI capital spending.
On supply chain execution, a Cantor Fitzgerald analyst inquired about potential constraints. Puccio confirmed that Analog Devices has delivered above-seasonal growth for nine consecutive quarters and is guiding to a tenth, supported by the addition of internal tools and external wafer supply. Management is preparing for further capacity expansion if growth continues. Roche added that the company is jointly planning with external partners to extend its hybrid manufacturing model across a broad range of process nodes. When a TD Cowen analyst questioned the durability of the roughly 74% gross margin, Puccio stated that the level can be maintained given expected revenue and mix, while Roche tied the margin structure directly to Analog Devices’ innovation premium.
Management is deliberately pairing investments in AI-related power, optics, and energy with strict operating discipline. Puccio emphasized that the company will balance growth spending with margin management as demand expands. Roche highlighted portfolio breadth and manufacturing flexibility as key mechanisms for capturing both secular and cyclical growth, while continuously monitoring macroeconomic and geopolitical headwinds. The call ultimately centered on Analog Devices’ capacity to scale supply, defend profitability, and convert rising AI infrastructure complexity into broader content opportunities over the coming years.
Analog Devices carries a Zacks Rank #2 (Buy), reflecting a favorable earnings-estimate-revision signal within Zacks’ one-to-three-month framework. Its Value Score is D, Growth Score is C, Momentum Score is D, and VGM Score is D. A complete list of today’s Zacks #1 Rank (Strong Buy) stocks is available via the referenced link. Zacks’ framework favors combining a Zacks Rank #1 or 2 with Style Scores of A or B; Analog Devices’ weaker Style Scores temper the otherwise favorable Rank signal. The Zacks Rank may adjust as estimates are revised following the reported results.
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