Why Analog Devices Stock Was Down This Week

What happened

Analog Devices (ADI -2.25%) shareholders lost ground to the market this week. The stock dropped 10% through Thursday trading, according to data provided by S&P Global Market Intelligence. That's compared to a 1% decline in the S&P 500. The semiconductor stock is still in positive territory so far in 2023, though, up 5%

Analog Devices' weekly decline was sparked by an earnings report that wasn't well received on Wall Street.

So what

The company said on Wednesday that sales trends remained strong through early 2023. Revenue was up 20% in the first quarter, in fact. This growth powered solid earnings results as well. Analog Devices boosted its operating margin to 35% of sales from 31% of sales a year ago, and earnings per share was up 29%. "ADI continued to execute well in the second quarter," CEO Vincent Roche said in a press release, "with revenue growth for the 13th consecutive quarter and record earnings."

Yet investors were more concerned about the chipmaker's short-term outlook, which implies a tougher selling environment ahead.

Now what

Management said sales gains in the second half of fiscal 2023 will likely slow due to weaker economic growth and a more normal supply environment. Revenue for the current quarter will land at about $3.1 billion, for example, or roughly flat compared to the prior year. Wall Street is now projecting just 5% growth for the full 2023 fiscal year compared to a 64% surge last year.

Investors had been hoping to see more substantial gains from this growth stock, and so it's no surprise that shares declined in the immediate wake of this earnings report. But Analog Devices is still targeting higher sales, earnings, and cash flow in 2023 following big gains through the pandemic.