3 Reasons ADI is Risky and 1 Stock to Buy Instead

Since January 2025, Analog Devices has been in a holding pattern, posting a small return of 4.9% while floating around $227.97.

Is now the time to buy Analog Devices, or should you be careful about including it in your portfolio? Get the full stock story straight from our expert analysts, it’s free.

Why Is Analog Devices Not Exciting?

We don't have much confidence in Analog Devices. Here are three reasons why we avoid ADI and a stock we'd rather own.

1. Revenue Tumbling Downwards

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 12.7% over the last two years.

2. Shrinking Operating Margin

Operating margin is one of the best measures of profitability because it tells us how much money a company takes home after procuring and manufacturing its products, marketing and selling those products, and most importantly, keeping them relevant through research and development.

Analyzing the trend in its profitability, Analog Devices’s operating margin decreased by 7.3 percentage points over the last five years. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability. Its operating margin for the trailing 12 months was 22.7%.

3. Previous Growth Initiatives Haven’t Impressed

Growth gives us insight into a company’s long-term potential, but how capital-efficient was that growth? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

Analog Devices historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 6.4%, somewhat low compared to the best semiconductor companies that consistently pump out 35%+.

Final Judgment

Analog Devices isn’t a terrible business, but it isn’t one of our picks. That said, the stock currently trades at 29× forward P/E (or $227.97 per share). Investors with a higher risk tolerance might like the company, but we don’t really see a big opportunity at the moment. We're pretty confident there are superior stocks to buy right now. We’d recommend looking at a dominant Aerospace business that has perfected its M&A strategy.

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