{"slug": "analog-devices-posts-record-quarter-as-ai-chip-demand-defies-a-bond-selloff", "title": "Analog Devices Posts Record Quarter as AI Chip Demand Defies a Bond Selloff", "summary": "Analog Devices reported record fiscal third-quarter revenue of $4.02 billion, up 40% year over year, driven by data center optical and power business growth of over 100%, which now accounts for about 13% of total revenue. The company guided fourth-quarter revenue to $4.3 billion, also 40% growth, despite a semiconductor index drop of about 20% from its June record amid a bond selloff. KeyBanc raised its price target to $525 from $500, citing a supply chain running hot from data centers to smartphones.", "body_md": "*Analog Devices just posted the best quarter in its history, and the reason has nothing to do with the panic hitting chip stocks this week.*\n\nOn August 19, Analog Devices reported fiscal third-quarter revenue of $4.02 billion. That's up 40% year over year, and above the top end of its own guidance. Adjusted earnings came in at $3.45 a share, beating the $3.33 Wall Street expected, according to Markets Today's tracking of the print. The real story sits inside the numbers. The company's data center optical and power business - the hardware that keeps AI server racks running and cool - grew more than 100% year over year. That single category now makes up roughly 80% of ADI's Communications segment and about 13% of total company revenue.\n\nGross margin held at 72.5%. Operating margin hit 50%, up 780 basis points from a year ago. Trailing twelve-month free cash flow reached $4.9 billion, 36% of revenue. That's a figure most software companies would envy. Let alone a chipmaker that spends heavily on fabs. For its fourth quarter, ADI guided to $4.3 billion in revenue, again 40% growth, comfortably ahead of the $4.08 billion analysts had penciled in.\n\nKeyBanc raised its price target on the stock to $525 from $500 and kept an Overweight rating. The firm's analysts had just returned from a trip through Asia's supply chain and came back convinced the AI buildout is tightening everything: analog chip bookings, DRAM and NAND pricing, memory availability, production capacity across PCs and flagship phones. Their conclusion, as reported by Investing.com, was that this isn't a one-quarter fluke. It's a supply chain running hot from the data center down to the smartphone.\n\nHere's the part that should confuse anyone reading the headlines. The same week ADI reported record results, the PHLX Semiconductor Index dropped roughly 5% on Tuesday and another 2% on Wednesday, landing about 20% below its June record. Nvidia, Broadcom, AMD, all of them fell together. None of it was about chip demand.\n\n[Alibaba's Cloud Unit Posts Fastest Growth in 22 Quarters as AI Spending Bites](https://startupfortune.com/alibabas-cloud-unit-posts-fastest-growth-in-22-quarters-as-ai-spending-bites/)\n\nAlibaba's cloud unit posted 45% revenue growth in the June quarter, its fastest pace in 22 quarters, as AI products now make up 35% of cloud revenue. Group profit fell 75% on heavy AI capex, but CEO Eddie Wu says the spending will pay back within three years. - [Alibaba cloud unit fastest growth in 22 quarters](https://startupfortune.com/alibabas-cloud-unit-posts-fastest-growth-in-22-quarters-as-ai-spending-bites/) - [AI spending driving enterprise cloud revenue growth 2026](https://startupfortune.com/alibabas-cloud-unit-posts-fastest-growth-in-22-quarters-as-ai-spending-bites/)\n\nThe 30-year Treasury yield hit 5.33% that Tuesday, its highest level since 2007. According to the Motley Fool, that move traces back to the U.S. fiscal deficit, which hit $432.3 billion in July, the worst monthly shortfall since March 2021, pushing the year's total deficit toward $1.8 trillion. Inflation is still running above the Federal Reserve's 2% target. Oil prices have been climbing too. None of that has anything to do with whether AI data centers need more analog chips. It has everything to do with what investors are willing to pay for long-duration growth stocks when the risk-free rate keeps climbing.\n\nChip stocks, priced for years of AI-driven earnings growth, take the hit hardest when discount rates rise. That's just how the math of valuing future cash flows works. It doesn't mean the earnings are fake.\n\nEven after the two-day slide, the semiconductor index is still up about 66% for 2026. That's the tell. This wasn't a repricing of AI's prospects. It was a repricing of everything with a long duration, crypto, growth tech, unprofitable biotech, all lumped in with chips because bond yields don't discriminate.\n\n## The bubble question this actually answers\n\nEvery AI infrastructure story eventually runs into the same skeptical question: is any of this real demand, or is it vendor financing and circular deals propping up a narrative? Analog Devices doesn't sell GPUs and doesn't have a stake in OpenAI or Anthropic. It sells power management chips and optical components that move electricity and data around a server rack, unglamorous parts nobody puts on a keynote slide. When that business grows over 100% in a single quarter, it's a harder number to wave away as hype.\n\nFrankly, this is the kind of quarter you should be watching if you're trying to figure out whether AI infrastructure spending is a bubble or a buildout. Nvidia's revenue tells you what's being sold at the top of the stack. ADI's tells you what's actually getting installed underneath it, in racks that already exist, drawing real power, today. The bond market may keep punishing every chip stock in sight for a while longer. That's a story about interest rates. Analog Devices just told a different one, about actual demand, in actual dollars, that showed up a quarter early.\n\n**Also read:** [Google's Gemma Models Just Hit a Billion Downloads and Wall Street Shrugged](https://startupfortune.com/googles-gemma-models-just-hit-a-billion-downloads-and-wall-street-shrugged/) • [OpenAI Joins Forces With Common Sense Media on a California AI Safety Measure](https://startupfortune.com/openai-joins-forces-with-common-sense-media-on-a-california-ai-safety-measure/) • [Nearly 6,000 CEOs Say AI Hasn't Boosted Productivity, Yet Layoffs Continue](https://startupfortune.com/nearly-6000-ceos-say-ai-hasnt-boosted-productivity-yet-layoffs-continue/)", "url": "https://wpnews.pro/news/analog-devices-posts-record-quarter-as-ai-chip-demand-defies-a-bond-selloff", "canonical_source": "https://startupfortune.com/analog-devices-posts-record-quarter-as-ai-chip-demand-defies-a-bond-selloff/", "published_at": "2026-08-23 04:00:44+00:00", "updated_at": "2026-08-23 04:12:31.321080+00:00", "lang": "en", "topics": ["artificial-intelligence", "ai-infrastructure", "ai-chips", "ai-products"], "entities": ["Analog Devices", "KeyBanc", "PHLX Semiconductor Index", "Nvidia", "Broadcom", "AMD", "Alibaba", "Eddie Wu"], "alternates": {"html": "https://wpnews.pro/news/analog-devices-posts-record-quarter-as-ai-chip-demand-defies-a-bond-selloff", "markdown": "https://wpnews.pro/news/analog-devices-posts-record-quarter-as-ai-chip-demand-defies-a-bond-selloff.md", "text": "https://wpnews.pro/news/analog-devices-posts-record-quarter-as-ai-chip-demand-defies-a-bond-selloff.txt", "jsonld": "https://wpnews.pro/news/analog-devices-posts-record-quarter-as-ai-chip-demand-defies-a-bond-selloff.jsonld"}}