Barclays upgraded Analog Devices (ADI) to Overweight in a research note published Thursday, arguing the analog-chipmaker is best positioned to benefit from an improving industrial backdrop and — in the bank’s words — carries "the cleanest operating model and balance sheet" among its peers.
Analyst Tom O’Malley said purchasing-manager indexes have finally delivered "the PMI inflection needed for some broader Industrial recovery," although he cautioned that scars remain from the last cycle. Barclays’ analysis highlights a mixed inventory picture: while distributor stock levels have returned to more normal ranges, company inventories "remain historically high impacting loadings and utilization, and impairing margins."
Within that context, Barclays sees selective upside tied to data-center trends, but it is discriminating across analog names. O’Malley wrote that ADI has "the most leverage to Industrial exposure," which the bank views as making Analog Devices the most attractive way to position for an industrial upturn.
By contrast, Barclays started coverage of Microchip Technology (MCHP) at Equal Weight. The bank noted Microchip’s exposure to networking and memory demand associated with AI-driven data-center buildouts, but it also flagged specific challenges for the company, including "a difficult spot from a leverage perspective" and "share loss in low end MCUs." Barclays set a $80 price target for Microchip.
Barclays also initiated coverage of ON Semiconductor (ON) at Equal Weight with a $75 target. The bank identified potential upside from rising data-center dollar content driven by a move to 800-volt architectures. However, O’Malley warned that ON Semiconductor cannot "break out" without a broader recovery in automotive demand, which he said "remains mum for foreseeable future."
Overall, Barclays emphasized that each company it reviewed faces at least one industry-specific headwind, reinforcing the bank’s preference for ADI given its combination of industrial exposure and balance-sheet strength.
Summary
Barclays upgraded ADI to Overweight and initiated coverage of MCHP and ON at Equal Weight, assigning $80 and $75 price targets to Microchip and ON Semiconductor respectively. The bank pointed to a PMI-driven turning point for industrial activity, but underlined persistent high company inventories and company-specific risks that temper its view across the group.
Key points
- Barclays upgraded Analog Devices to Overweight, citing strong industrial leverage and a clean operating model and balance sheet.
- The bank initiated Microchip and ON Semiconductor at Equal Weight with $80 and $75 price targets, noting data-center related demand but also company-specific constraints.
- Purchase-manager indexes provided what Barclays called the necessary PMI inflection for a broader industrial recovery, but elevated company inventories are still weighing on loadings, utilization and margins.
Risks and uncertainties
- Company inventories remain historically high, which Barclays says is impairing margins and factory utilization - a risk to industrials and semiconductor suppliers.
- Microchip faces leverage pressure and reported share loss in low-end microcontroller units, creating downside risk for its networking and memory exposure tied to data centers.
- ON Semiconductor’s ability to outperform is constrained by a lack of recovery in automotive demand, leaving the stock dependent on a resurgence in auto markets.