ADI Stock: The Analog Star Powering the Age of Machines

analog devices stock
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Analog Devices Stock to Rise Further With New Car Tech

Today’s stock is another example of how investors can make triple-digit returns, and I continue with my theme of picking stocks in the emerging age of machines. By investing in stocks that are most likely to gain with the advancement of digital technology, investors stand to reap huge gains.

Companies are focused on innovation, and are transforming themselves in order to make the most of opportunities in a world that is increasingly becoming dominated by human-machine interactions.  

Analog Devices, Inc. (NASDAQ:ADI) is a world leader in the design and development of a broad portfolio of high-performance signal-processing solutions with applications in industrial, automotive, communications, and consumer markets.

The company’s signal-processing technology plays a crucial role in converting real-world phenomena such as sound, light, speed, temperature, and pressure into electrical signals to be used in a wide array of electronic devices. Hence, Analog Devices serves various analog and mixed-signal needs and bridges the gap between the physical and digital world.

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Analog Devices’ products help create safer, greener, and more connected automobiles.

With the rise of new generations of applications, more demand is emerging for the company’s analog and digital signal-processing products. Some of the most exciting of these are in the automotive market, where Analog Devices is playing an increasing role in self-driving cars and robotics.

The company is supplying parts for Radar and Lidar technologies that help with very good representations of the real world. Innovations such as these are what keep interest high in Analog Devices stock.  

Also ReadBest Semiconductor Stocks List for 2017

According to research by IHS Markit Ltd, the automotive semiconductor market is forecasted to rise to about $34.4 billion in full-year 2017. Moreover, the electronic content per car has been increasing from $312.00 in 2013 to a predicted $460.00 in 2022. This translates into a compound annual growth rate (CAGR) of 7.1% from 2016 to 2022, when the automotive semiconductor market is expected to expand to at least $48.0 billion. (Source: Automotive Semiconductor Market Tracker, IHS Markit Ltd, September 13, 2017)

Automotive systems sold in developed nations are expected to continue to keep adding new features, such as fuel-saving enhancements, premium audio systems, and other connected car features. 

Analog Devices is well positioned to gain from technological trends, and the company’s focus on the automotive sector should be positive for Analog Devices stock. With the rise of human-machine interfaces like voice assistance, the number of chips in vehicles will likely keep going up. This will probably result in ADI stock posting bigger gains.

The company’s acquisition of Linear Technology Corporation (NASDAQ:LLTC)—another strong analog player—early this year has been a great move, as evident by the stellar financial results posted by the company.

Analog Devices recently announced its third-quarter 2017 results, with revenue and earnings performance exceeding the high end of the company’s guidance. The non-generally accepted accounting principles (GAAP) revenue was $1.46 billion, with a $393.0-million contribution from Linear Technology.

The company’s strong performance over the years has been reflected in the rise of the Analog Devices stock price, which has returned about 43% over the last year and more than 120% in the last five years. The following stock chart shows this phenomenal rise.

ADI stock chart

 

Chart courtesy of StockCharts.com

The acquisition of Linear Technology has helped turn Analog Devices into a global analog industry leader, and has expanded the company’s revenue opportunities. The deal with Linear has added power management products to the company’s portfolio, and those products hold immense potential as  automakers get to cut costs in their shift to electric and hybrid vehicles.

Analyst Take:

The changing trends in mobility bode well for Analog Devices, whose analog chips connect the physical world with the digital one. The company has a broad portfolio of products that improve fuel efficiency, vehicle stability, and the in-cabin audio/video experience. They are also useful in crash sensors in airbag systems, battery monitoring systems, management systems, etc.

There is growth potential for Analog Devices as the dollar amount of semiconductor content per car keeps increasing. Moreover, the expansion of the electric vehicle market should translate into higher demand for the company’s products, which should push Analog Devices stock higher.

Given the strength, diversity, and growth potential of the company’s product portfolio, investors should take advantage of every weakness in the ADI stock price.