Analog Devices Shows Why AI Is Not the Only Story Driving Chip Demand

Key Points

• Analog Devices delivered a record fiscal third quarter, with data center strength leading growth, while industrial and automotive also contributed meaningfully.
• Industrial revenue accounted for nearly half of Analog’s quarterly sales, indicating that the semiconductor recovery is broader than AI infrastructure alone.
• Microchip Technology offers a similar diversified chip setup, with exposure to industrial, automotive, aerospace, defense and data center markets.

It seems all but confirmed that 2026 will be a year given over to AI, with chipmakers like NVIDIA Corp. NASDAQ: NVDA always at the forefront of discussions of the potential for further growth. Companies tied to data center infrastructure buildout have thrived as industries pour billions of dollars into creating more AI computing capacity.

At least one global semiconductor firm is showing a different path that has also yielded strong results, however. Analog Devices NASDAQ: ADI has undoubtedly benefited from the AI-related surge, as shares are up by 33% year to date (YTD).

However, the company's latest quarter results demonstrate that there are other growth areas as well. Namely, industrial and automotive markets show strong potential to drive chipmakers like Analog in the coming quarters, even as these industries are often overshadowed by the focus on AI.

A Closer Look at Analog's Latest Earnings

For fiscal Q3 2026 ending Aug. 1, Analog reported strong results that investors might easily attribute to its connection with the rapidly expanding AI sector. Analog's 39% year-over-year (YOY) revenue gains, for example, led to more than $4 billion in revenue for the quarter, more than $100 million above analyst estimates. Earnings per share (EPS) also climbed substantially and beat analyst expectations.

To be sure, these guidance-beating metrics were due in large part to the company's data center business, which saw revenue more than double YOY in both the optical and power categories. The company's addressable market in the data center space is also growing quickly, a sign that management's expectation of double-digit growth in these markets over the next three or more years may be reasonable.

What Can Industrial and Automotive Applications Mean for Analog?

What these headlines potentially obscure, however, is that Analog's recovery as a semiconductor company is more broad than just the AI industry. Indeed, Analog's latest results would suggest that demand for semiconductor products is returning across a more traditional slice of the economy. Industrial revenue, for instance, made up 49% of the company's total sales last quarter, reaching just under $2 billion after surging by 53% YOY. This was due to automation, electronic test and measurement, aerospace and defense, and other demand.

Industrial applications are largely independent of AI, so these growth factors could continue to contribute to Analog's top-line gains even if AI infrastructure spending slows. This may help to make the company's performance more durable over the longer term.

Automotive is also a corner of the market that could benefit Analog in the quarters to come. Revenue from the automotive category climbed 16% YOY last quarter and represented about a quarter of the company's sales for that period. As more driver-assistance and infotainment systems require next-generation semiconductor hardware, Analog is demonstrating that it can meet this need.

Both industrial and automotive business have been major drivers of Analog's sales up to this point, and secular trends might suggest that these industries will continue to fuel sales growth for the foreseeable future.

What Broad Semiconductor Demand Means for Analog and Its Competitors

As semiconductor demand grows across industries, a company like Analog may become increasingly stable. The company's chips help connect the digital and physical worlds through functions such as sensing, power management, signal conversion, and more. This makes them vital for a host of applications ranging from automation to medical tools to aerospace. In turn, Analog's business may be more durable than those chipmakers that have increasingly become dedicated to a single industry, such as AI, in case demand in one part of the market collapses.

Analog is not the only company in a position to benefit here. Microchip Technology Inc. NASDAQ: MCHP is another diversified semiconductor maker with products that are valuable for automotive, industrial, aerospace, and other applications. It also had strong recent results pointing to a broader semiconductor recovery not exclusively reliant on AI.

Perhaps the clearest signal for investors that these companies could be poised to benefit from rising demand across industries is how Wall Street analysts view them. ADI shares, for instance, have a stellar 28 Buy ratings and just two Holds, plus a predicted 25% upside. MCHP stock is not far behind, with 16 Buy ratings and eight Holds, and it enjoys an even more promising 33% in anticipated upside. While neither company is risk-free, both are well positioned to thrive whether or not the AI boom continues.