Cycle Risks Remain, But Analog Devices Has Solid Long-Term Credentials

There is certainly a faction of analysts and investors that perpetually view semiconductors as either in a downturn or heading toward the next downturn, and I suppose while that may be technically true, you will miss a lot of winners that way. That being said, it's equally foolish to ignore the cyclicality of the semiconductor space, as buying at the top can lead to a lot of years of lackluster performance.

I was neutral on Analog Devices (NASDAQ:ADI) back in April of 2021 mostly due to my concerns about a sentiment shift against semiconductors as investors would eventually come to the conclusion that unsustainable lead-times are, in fact, unsustainable and will eventually lead to an order correction cycle that would likely compress growth and margins for a time.

Since then, the shares have returned about 5%, underperforming the S&P 500 and the SOX, as well as some of the chip names I've preferred, including Broadcom (AVGO) and STMicro (STM). I'm still concerned about sentiment and the prospect of negative revisions when lead-times shrink, but this is definitely a name I'd at least follow now and seriously consider if there's another re-test of those lows in the $140's.

 

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Cycle Risks Remain, But Analog Devices Has Solid Long-Term Credentials