Analog Devices ADI highlighted data centers as one of its strongest growth areas on the first-quarter fiscal 2026 earnings call. Analog Devices' automated test equipment (ATE) and data center businesses together now make up close to 20% of total revenues and represent a run rate of more than $2 billion. The company's data center business grew about 50% in fiscal 2025 and saw accelerated growth again in the first quarter of fiscal 2026. This suggests that AI data center demand is becoming a more meaningful driver of ADI’s business.
The main driver is higher power demand in AI data centers. AI servers require more power and tighter control as workloads become more complex. This is driving the demand for ADI's hot swap and protection products, which help move larger amounts of energy safely across racks. Further, ADI is also witnessing rising demand for point-of-load converters, high-performance regulators, power system management ICs and multiphase controllers. ADI has already shipped its smart power stage to its first vertical power customer and is seeing faster adoption of intermediate bus converter modules for 48V and 54V systems.
The company is also benefiting from growth in optical connectivity. AI is increasing the amount of data that needs to move within and between data centers. This is where ADI's precision control, monitoring, temperature regulation and power management solutions help customers to improve speed, reduce power usage and lower overall costs.
The above-mentioned factors show that ADI’s data center business is gaining scale and is supported by clear AI-driven demand in power and optical solutions. If this momentum continues, it can become a key long-term growth driver for the company. The Zacks Consensus Estimate for fiscal 2026 revenues is pegged at 13.79 billion, indicating a year-over-year increase of around 25.1%.
How Competitors Fare Against ADI
ADI faces stiff competition from Broadcom AVGO and Advanced Micro Devices AMD in the AI infrastructure space.
Broadcom is a leader in the domain of custom silicon solutions for data centres. Broadcom’s advanced 3.5D XDSiP packaging platform is critical to ensure the performance and efficiency of custom AI XPUs. Broadcom’s Semiconductor segment, which accounts for its custom silicon solutions, has experienced massive growth in the past several quarters.
Advanced Micro Devices is another established player in the custom silicon solutions and AI accelerator market. AMD offers semi-custom SoCs and Instinct Accelerators to power data centers. Further, Advanced Micro Devices’ reconfigurable Alveo Adaptable Accelerator Cards are critical for compute-intensive applications in data centers.
ADI’s Price Performance, Valuation and Estimates
Shares of ADI have gained 31.5% in the past six months compared with the Semiconductor - Analog and Mixed industry’s growth of 20%.
ADI 6-Month Performance Chart
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From a valuation standpoint, ADI trades at a forward price-to-sales ratio of 11.03X, higher than the industry’s average of 8.37X.
ADI Forward 12-Month (P/S) Performance Chart
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The Zacks Consensus Estimate for ADI’s fiscal 2026 and 2027 earnings implies year-over-year growth of 44% and 10.8%, respectively. The consensus estimate for fiscal 2026 and 2027 has been revised upward in the past 30 days.
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ADI currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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This article originally published on Zacks Investment Research (zacks.com).
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