Analog Devices Sees No Sign of Inventory Restocking Yet as Data Center and Defense Businesses Approach $2 Billion Run-Rates
JPMorgan U.S. All-Stars Conference, London, September 22, 2026
Analog Devices Chief Financial Officer Richard Puccio used his appearance at JPMorgan's U.S. All-Stars Conference, in a fireside chat with semiconductor analyst Harlan Sur, to lay out a picture of a company still in the early innings of a cyclical and structural upswing, with management now guiding to double-digit revenue growth extending into fiscal 2027. The headline disclosure was less about the growth rate itself, which the Street has largely priced in, and more about where ADI sits in the inventory cycle: despite a year of accelerating shipments, the company still has not seen customers begin restocking, meaning the current growth is being driven almost entirely by end demand rather than channel refill.
Inventory Restocking Still Ahead, Not Behind
Puccio was explicit that ADI's three "super cycle" businesses, aerospace and defense, automated test equipment (ATE), and data center, have already pushed through historical consumption levels and are running above them, but that this reflects real end-demand pull rather than inventory building. "I don't think we've even finished getting back to consumption broadly, because so much of our business is below that level," he said, noting that more than half of ADI's industrial subsegments remain in the double digits below their historical consumption line. That matters for investors trying to handicap cycle duration: Puccio said the company tracks inventory and revenue levels across 250 customers and has seen no evidence yet of safety-stock building, which he called "not been a primary or even a secondary driver of our growth yet." With gross inventory at record levels and channel inventory still running just under the company's 6-to-7-week target despite deliberate restocking efforts, the implication is that a second leg of growth, a true replenishment cycle, has not yet begun.
Aerospace, Defense and ATE Scale Up Fast
The aerospace and defense business, which was just approaching a $1 billion annualized run rate a year ago, is now nearing $2 billion at the Q3 exit rate, spanning government contracts and commercial off-the-shelf products used in LEO and geosynchronous satellites, drones and missile defense systems. Puccio said the business "can continue to grow double digits for the next decade," citing a 50% increase in U.S. defense spending requests and rising European defense budgets tied to GDP commitments. The ATE franchise, which benefits indirectly from hyperscaler infrastructure spending as more complex testers are needed to validate high-bandwidth memory and high-performance compute, is now running at roughly $1 billion annualized, with each new generation of tester complexity pulling through more ADI content, a dynamic Puccio compared directly to the content-gain story in automotive.
Data Center Business Doubles, With Power Set to Outgrow Optical
ADI's core data center business, combining power delivery and optical control products, is up 100% year-over-year and running at a $2 billion annualized rate, split roughly evenly between power and optical today. Puccio said that mix will shift over time as the company pushes into "Stage 2" power delivery, the final conversion step from intermediate voltage down to the chip itself, an area strengthened by the recent Empower acquisition, which gives ADI a vertical power (IVR) solution. "Our analysis would say we can save 15-plus percent power loss," Puccio said of the vertical approach versus lateral power delivery, adding that at gigawatt data center scale, "that's a lot of power savings." He said this Stage 2 opportunity represents the company's single biggest long-term growth vector within data center, ahead of the optical business, where ADI already ships 1.6 terabyte solutions and is working with customers on next-generation 3.2 terabyte speeds. Combined with an adjacent energy infrastructure and storage business, currently around $500 million in annualized revenue and built on ADI's battery management systems expertise, management argues it now has visibility into the full power chain "from grid to chip," a positioning Puccio said is increasingly valuable in direct conversations with hyperscaler customers.
Alif Acquisition Signals Edge AI Push, Not a Near-Term Financial Driver
The recently announced acquisition of Alif Semiconductor, a maker of low-power, AI-native microcontrollers for edge applications, was framed as a multi-year strategic accelerator rather than a financial event. Puccio said the deal is not expected to be material to revenue or costs in the near term, with any meaningful contribution more likely in fiscal 2028. The strategic rationale centers on giving ADI a compute platform to pair with its sensing and signal-chain portfolio for physical AI use cases such as robotics, where low power, low latency and data security are critical. "This was a technology that probably over time, we could have developed, but where they were, this was a really important time accelerator for us," Puccio said, adding that Alif's sensor fusion capability was an important part of the deal beyond compute.
Pricing Actions Reflect Persistent Inflation, Not Margin Expansion
ADI has pushed through two price increases in 2026, one in February targeted at channel customers and a broader across-the-board increase in mid-September, both framed explicitly as cost recovery rather than margin expansion. Puccio said inflation has broadened beyond early pressure points like transportation and gold costs into wafer pricing and assembly costs across the supply chain. While he does not currently have additional price increases planned, he left the door open: "If it looks like it's going to materially have an impact, we would consider an incremental price increase, but obviously, that's not our preferred path." That comment carries some read-through risk given commentary from foundry partners suggesting further wafer price increases are likely heading into 2027.
Record Margins Achieved at Lower Industrial Mix Than Prior Peak
ADI guided to record gross margins in the fiscal fourth quarter, a notable data point given that the company's prior margin peak came with industrial at 53% of revenue, versus roughly 50% today. Puccio said further mix shift toward industrial, better fixed-cost absorption from accelerating revenue, and potential future pricing actions are the primary levers for maintaining or improving margins from here, but he was clear that manufacturing utilization is not expected to be a source of further upside since factories are already running hot and the company is actively adding capacity. Free cash flow margin, which came in at 36% on a trailing twelve-month basis with over 100% of free cash flow returned to shareholders, remains targeted at the 34% to 40% range, with management aiming for the high end.
Broad Market Recovery Still Early in the Cycle
The mass market, or broad-based catalog business, sold through distribution to a long tail of small and mid-sized customers, represents about 15% of ADI's industrial segment and carries gross margins above the corporate average, according to Puccio, who noted that many larger customers also purchase through this channel. He pointed out that by the end of the fiscal fourth quarter, the broad market will have posted only four consecutive quarters of growth, "still much shorter than what would be a typical cycle before we'd see a turn," reinforcing management's view that the current up-cycle still has considerable runway left before it matures.