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Analog Devices (ADI -5%) is heading lower despite reporting upside for its Q2 (Apr) report last night. It beat handily on EPS and revenue rose a healthy 22.3% yr/yr to $2.64 bln, which was above expectations. ADI also guided nicely above analyst expectations for Q3 (Jul). ADI said on the call that it believes its revenue bottomed in 2024. Customer inventories are lean, and ADI is in a cyclical upturn.

• Revenue growth was broad-based with double-digit yr/yr growth across all end markets. While ADI believes the evolving tariff situation is impacting customer decision making, the cyclical and ADI-specific tailwinds highlighted last quarter continued and ADI is even more confident than when revenue bottomed in 2020. This means ADI expects a return to top line growth in FY25.
• Importantly, ADI noted that it invested substantial cap-ex in recent years, despite the downturn, to scale its hybrid manufacturing model. ADI expanded capacity at its existing fabs in the US and Europe and added commensurate capacity in its back-end facilities. Furthermore, ADI deepened partnerships with trusted foundries around the world. In short, customers now enjoy greater supply optionality and resilience.
• An important point ADI made on the call is that advances in automation within the industrial market have created tremendous opportunity for ADI. The progression of robotics requires ever greater quantities and integrations of sensing, edge computing, connectivity and energy management. The could drive ADI's content from hundreds of dollars in fixed robots today to potentially thousands in autonomous and humanoid robots in automotive.
• ADI conceded that buying behavior was a bit choppier than normal as ADI saw some increased activity around the tariff announcements. This was short lived, and orders have returned to more normalized levels. Overall, Q2 bookings grew sequentially across all end markets and all geographies, and its backlog entering Q3 is higher than a quarter ago.

In terms of why the stock is lower, the quarter was actually quite strong with solid guidance. Importantly, ADI reiterated that it believes its revenue bottomed in 2024 and that ADI is in a cyclical upturn. It comments about recent choppiness may be weighing on shares a bit. Also, the stock has rallied 40% from its early April lows, so we may be seeing some sell-the-news reaction.