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

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.

Companies tied to data center infrastructure buildout have thrived as industries pour billions of dollars into creating more AI computing capacity. 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.

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 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 Ana...