By Tae Kim
Analog Devices stock is an attractive buying opportunity because the worst of the downturn in chip demand is nearly over, according to Morgan Stanley.
On Thursday, analyst Joseph Moore raised his rating for Analog Devices shares (ticker: ADI) to Overweight from Equal-weight. He increased his price target for the stock to $225 from $176.
“We are not yet at bottom — but it is in sight,” he wrote. “The report next week will be mixed at best, but has potential to be the ‘last cut'”.
Analog Devices is slated to report its fiscal fourth-quarter earnings on Tuesday. The stock was up 1.5% to $182.55 in midday trading Friday.
The analyst said that six out of the past eight chip downturns lasted 22 to 26 months. He believes Analog Devices chip shipments peaked in May 2022 before entering the current slide, suggesting the bottom may come around May 2024.
The company also outperformed its peers in terms of profitability in the past three chip downturns, said Moore.
“ADI is a core holding in the analog space long term as the company has exposure to the right end markets as well as superior [profit] margins,” he wrote.
Analog Devices sells a broad-based portfolio of chips that go into products in nearly every sector and industry. The company has more than 125,000 customers.
The stock has risen 13% over the past 12 months, versus the 38% rise in the iShares Semiconductor ETF (SOXX), which tracks the performance of the ICE Semiconductor Index. The S&P 500 is up 14%.
Write to Tae Kim at tae.kim@barrons.com