Record Revenue $3.62B (+37% YoY) Above High End of $3.5B ± $100M Guide; Record EPS $3.09 (+67% YoY, +26% Sequential) Well Above $2.88 ± $0.15 Guide; Record Gross Margin 73% (+180bp Sequential, +360bp YoY); Operating Margin 49% Above 47.5% Guide (+780bp YoY); Industrial +56% YoY With ALL Subsectors Up Sequentially and YoY (Aerospace & Defense Record, ATE/ETM/Broad Market All Up); Communications +79% YoY With Data Center +90% YoY (Optical + Power Equally Driving); Empower Semiconductor Acquisition Announced for True Vertical Power Delivery to AI Accelerators (4x Power Footprint Reduction); Q3 Guide $3.9B / 49% OM / $3.30 EPS — Sequential Ramp Continues; $1.3B Returned in Q2 With $5B Trailing 12-Month Capital Return — Maintaining Outperform With Highest Conviction of the Cycle

Coverage Update from Q1 FY26

Three months ago at the Q1 FY26 print, we maintained Outperform with HIGH conviction at ~$328 with a $340-$380 base case 12-month price target. Our thesis: the "banner year" framing articulated at Q1 was supported by a major multi-quarter inflection — revenue +30% YoY accelerating, EPS +51% YoY, operating margin 45.5% above guide, gross margin 71.2% record. We modeled Q2 FY26 revenue $3.5-$3.55B and EPS $2.85-$2.95. We expected continued multi-quarter execution + multi-year AI exposure + multi-year automation + dividend acceleration.

The Q2 FY26 print delivers on every dimension and exceeds the bull case:

• Revenue $3.62B — above $3.5B ± $100M guide ($70M above midpoint, $20M above high end)
• EPS $3.09 — $0.21 above $2.88 midpoint, $0.06 above $3.03 high end
• Gross margin 73% — a record (we modeled ~71-72% range)
• Operating margin 49% — above 47.5% guide, +180bp above our model
• Industrial +56% YoY — well above our 30-35% YoY range expectation
• Data center +90% YoY — substantially above our +60-70% YoY range expectation
• Q3 guide $3.9B — above our $3.7-$3.8B range expectation
• Empower Semiconductor acquisition — new structural AI accelerator TAM expansion (not modeled at Q1 FY26)
• $5B trailing 12-month capital return — accelerated from $4.6B at Q1 FY26
• Confidence in growth into 2027 increasing — explicit framework extension

The Q2 FY26 print converts the "banner year" framing into a multi-year structural growth framework. We are widening the fair value range to $360-$410 (mid-point ~$385) on the elevated execution + multi-year visibility extension into FY27. The structural drivers — AI infrastructure exposure (~22% of revenue now), industrial recovery + secular content gains, multi-year operating leverage, Empower TAM expansion, capital return acceleration — are all compounding.

Results vs. Consensus — Q2 FY26

Q2 Scorecard

YoY Comparison

QoQ Comparison

Q3 FY26 Guide

Quality-of-Beat Callout

Segment Performance

Industrial — $1.81B (50% of revenue) / +20% sequential / +56% YoY

Industrial is now 50% of revenue — a structurally important mix shift (up from 44% at Q2 FY25). ALL subsectors increased both sequentially and year-over-year. The breadth is extraordinary: aerospace & defense (record quarter), ATE (record continuing momentum), ETM (electronic test & measurement, strong performance), broad market (returned to robust growth), automation (accelerating recovery toward humanoid robotics opportunity), energy (BMS for ESS sustained >50% growth from FY25), health care (double-digit growth on larger-OEM design-ins).

Management highlighted the industrial business beyond ATE and aerospace & defense — collectively grew >40% in H1 FY26. This includes: automation (digital factory + humanoid robotics), electronic test & measurement (highly diversified performance-driven), sustainable energy (grid + BMS + ESS), health care (advanced imaging + patient monitoring + surgical robotics + wearables), and broad market (long tail of tens of thousands of established/emerging customers). The "still well below their prior cycle highs with lean channel inventories" framing supports continued multi-quarter growth.

Q3 FY26 guide: industrial sequential mid-to-high single-digit — above seasonal. The trajectory supports continued sequential acceleration with FY26 industrial revenue trending toward $7.5-8B (vs. $5B FY25).

Assessment: Industrial is the structural multi-year compounder within ADI. The cyclical recovery + secular content gains compounding. 15-20 year product life cycles + sticky design-ins + the broadest portfolio of any analog player + the most profitable segment in ADI. The Q2 +56% YoY is the cleanest confirmation that the recovery is multi-quarter and sustainable. We model industrial reaching 52-53% of total revenue by end-FY26 with continued growth trajectory.

Communications — $543M (15% of revenue) / +22% sequential / +79% YoY

Communications is the AI infrastructure exposure story. Data center now accounts for >75% of communications revenue and was up >90% YoY. The data center growth is "fueled pretty much equally" by optical and power portfolios — both seeing strong orders + results. Wireless +35% YoY (continued strength in 5G + IoT applications).

The trajectory: data center crossed $1B quarterly run rate at Q4 FY25; further accelerated Q1 FY26; +90% YoY at Q2 FY26 — implying ~$1.4-1.5B quarterly run rate, an extraordinary acceleration in less than 2 quarters. Management indicates data center is expected to be the "fastest growing sequentially" in Q3 FY26 — implying low-to-mid teens sequential = $1.6-1.7B quarterly run rate by Q3.

The Empower acquisition adds incremental data center exposure: vertical power delivery for AI accelerators, IVR + silicon capacitor technology. Minimal FY26 revenue but significant FY27 acceleration expected.

Assessment: Communications/data center is the structural AI infrastructure exposure that has rerated ADI's growth profile. The combination of (a) optical portfolio (high-margin growth), (b) power portfolio (vertical power architecture), (c) emerging OCS optical, (d) Empower IVR acquisition supports continued multi-quarter acceleration. We model data center reaching ~22-24% of total revenue by end-FY26 (vs. ~15% at Q2 FY25).

Automotive — $870M (24% of revenue) / +8% sequential / +2% YoY

Auto delivered above-expected sequential strength on China pickup in back half of quarter. The previously expected below-seasonal Q2 (due to tariff-driven pull-in in Q1 FY26) instead came through with regular seasonality. Strength fueled by: GMSL (gigabit multimedia serial link for ADAS/infotainment), functionally safe power, A2B (automotive audio bus). The combination of content gains + share gains in next-gen ADAS and infotainment systems supports the multi-year compound double-digit growth track record (10+ years at low-double-digit, accelerating to mid-teens over last 5 years).

Notable Q2 development: BMS revenue for EVs returned to year-over-year growth for the FIRST TIME in 2 years. EV penetration in Europe and China supportive. China automotive picked up materially in back half of quarter — driving Q2 upside. L3 ADAS expected to deploy in some China vehicles by end of year.

Q3 FY26 guide: automotive sequential mid-to-high single-digit — above seasonal. Record bookings; positive book-to-bill. Inventory at OEMs and Tier 1s described as "fairly lean" — supporting continued growth.

Assessment: Automotive is structurally healthy with multi-year content + share gain framework. The BMS-for-EVs YoY growth recovery is structurally bullish — supports continued multi-year acceleration as EV penetration globally compounds. We model automotive reaching $3.5-3.8B FY26 with continued mid-to-high single-digit YoY growth into FY27.

Consumer — $400M (11% of revenue) / flat sequential / +23% YoY

Consumer flat sequential with +23% YoY growth. Strong growth reflects exposure to high-end consumer space + ongoing cyclical tailwinds in B2B-like prosumer business. Q3 FY26 guide: consumer down single-digit sequentially — only segment moderating. CFO attributes Q3 sequential moderation to consumer sentiment + inflationary pressures impacting demand.

Assessment: Consumer is the smallest segment (11% of revenue) and the only segment moderating in Q3. The structural framework is high-end consumer + prosumer rather than mass-market consumer — making the segment less exposed to broad consumer cycle. We don't view the Q3 consumer moderation as a multi-quarter concern; the segment continues to be a positive contributor to consolidated growth.

FY26 Outlook — Trajectory Materially Above Prior Framework

Key Topics & Management Commentary

Overall Management Tone: The most confident and forward-leaning tone in years. CEO Vincent Roche framing the quarter as "establishing new high watermarks for both revenue and for earnings" with "confidence in our future has never been greater." Management explicitly extending the "banner year" framework into multi-year visibility — "our confidence in their [data center + ATE] continued growth into '27 is increasing." The Empower acquisition announcement signals strategic capital deployment beyond organic execution. The tone reflects a company operating at the intersection of cyclical recovery acceleration + secular AI/automation tailwinds + multi-year operating leverage compounding.

1. The "Banner Year" Materializing Into Multi-Year Framework

"Despite the quarter's heightened geopolitical tensions and ongoing macroeconomic challenges, we're currently seeing record demand for our products and solutions. It's at times like these, when our dynamic hybrid manufacturing model performs, our robust investments over recent years have enhanced the scale and the optionality of our supply chain, enabling ADI to address demand surges and capture upside."
— Vincent Roche, CEO

The Q2 FY26 print materializes the "banner year" framework articulated at Q1 FY26 into operational reality. The hybrid manufacturing model + supply-chain resilience + R&D investment combination is the structural foundation. With internal capacity more than doubled vs. pre-COVID and expanded external supply optionality, ADI has the capacity headroom to capture upside that competitors with thinner manufacturing footprints cannot match.

Critically, the CEO is explicit that data center + ATE growth confidence is INCREASING into 2027 — extending the multi-year framework. Aerospace & defense on "already strong multi-year growth path." Industrial businesses "still well below their prior cycle highs with lean channel inventories" supporting continued multi-quarter growth.

Assessment: The multi-year framework is structurally bullish. The combination of (a) cyclical recovery extending multi-quarter, (b) secular AI infrastructure exposure compounding, (c) industrial content gains via new product platforms (E2B, Acoustics, Smart Power Stage, Empower IVR), (d) multi-year operating leverage all supporting the multi-year compounder thesis. We extend our framework into FY27 with revenue trajectory toward $17-18B and EPS trajectory toward $13-14.

2. Empower Semiconductor Acquisition — Vertical Power for AI Accelerators

"Let me speak briefly about our planned acquisition of Empower Semiconductor, which will further augment our power technology portfolio and provide the final piece of our comprehensive grid-to-core power platform. With Empower, we gained cutting-edge proprietary integrated voltage regulator or IVR technology and silicon capacitors that enable us to offer true vertical power delivery to our customers. The extreme power density of Empower's platforms eliminates customers' needs for bulky external components, shrinks their power footprint by up to 4x, slashes their data center compute power consumption by an estimated 10% to 15% and delivers the ultra-fast transient response required by volatile AI workloads. This transaction will expand ADI's total addressable market within the hypergrowth AI accelerator space and further solidify our position as an indispensable hardware partner in the drive for maximum compute density per server rack."
— Vincent Roche, CEO

Empower Semiconductor acquisition is the structural strategic move of the quarter. The economics are compelling:

• 4x power footprint reduction at the AI accelerator
• 10-15% data center compute power consumption savings at the data center level
• Ultra-fast transient response required by volatile AI workloads
• Vertical power delivery to XPU/GPU/CPU level — the future of AI accelerator power architecture

Strategic logic: closes the last gap in ADI's grid-to-core power platform. Empower IVR + silicon capacitor technology positions ADI further up the value chain. Power architecture is becoming the binding constraint for AI accelerator scaling — moving from rack-level to chip-level power delivery is the structural shift.

Financial framework: minimal FY26 revenue contribution (close pending regulatory approval, post-revenue phase company). Significant FY27 revenue expected with multiple design-ins in train. ADI's manufacturing + go-to-market scale will accelerate Empower's penetration vs. standalone.

Assessment: Empower is a structural AI accelerator TAM expansion. The multi-year framework benefit is real — vertical power delivery is the architectural future of AI accelerator power. We model Empower contributing $200-400M FY27 revenue and reaching $1B+ run rate by FY28-29. The strategic capital deployment demonstrates management's recognition that the AI infrastructure opportunity requires complete grid-to-core coverage.

3. Industrial — All Subsectors Up With Long-Tail Strength

"Industrial, which represented 50% of our second quarter revenue, finished up 20% sequentially and 56% year-over-year. All of our industrial businesses increased sequentially and year-over-year, led by aerospace and defense, ATE, ETM and the broad market. … Collectively, these markets have grown more than 40% in the first half of fiscal '26. Customers across these sectors are consuming more semiconductors with each new product generation. And from a cyclical perspective, these businesses are still well below their prior cycle highs with lean channel inventories. This combination of secular and cyclical positioning, along with strong demand signals, gives us confidence that all of our industrial sectors are poised for continued strong growth in the coming quarters and indeed over the longer term."
— Vincent Roche, CEO

The industrial breakdown is structurally extraordinary — 50% of revenue +56% YoY with ALL subsectors up sequentially AND YoY. The "still well below prior cycle highs with lean channel inventories" framing is the structural bullish thesis: cyclical upside continues even with secular content gains compounding.

The five industrial sub-themes beyond ATE + Aerospace & Defense (the >40% H1 FY26 cluster):

• Automation: Digital factory vision + next-gen robots. ADI portfolio of sensing, signal chain, power, connectivity solutions enabling edge intelligence in automated fabs, biopharma, data centers, manufacturing. Humanoid robotics 10x content multiplier (per Q3 FY25 framework) materializing.
• Electronic Test & Measurement (ETM): R&D prototyping, debugging, validation through mass production in AI, EVs, secure comms. Diversified performance-driven market.
• Energy: Grid monitoring, metering, management. BMS for ESS >50% growth in FY25 sustained. Electrification + AI compute electrification creating profound infrastructure challenges.
• Healthcare: Advanced imaging, patient monitoring, surgical robotics. Wearables expanding to outpatient management. Double-digit growth with larger OEM design-ins.
• Broad market: Long tail of tens of thousands of customers. Returned to robust growth.

Assessment: The industrial breadth + depth + secular content gain combination is structurally bullish. The 15-20 year product life cycles + sticky design-ins + 5x industry-average ASPs + ADI's most profitable segment supports continued multi-quarter execution. We model industrial reaching 52-53% of revenue by end-FY26 with continued growth into FY27.

4. Aerospace & Defense Record on National Sovereignty

"Another robust growth market for ADI is our aerospace and defense business, which reached a new revenue high this quarter and where increased focus on national sovereignty concerns is accelerating an already strong multiyear growth path."
— Vincent Roche, CEO

Aerospace & defense delivered a record quarter. The national sovereignty acceleration is the structural multi-year tailwind — geopolitical tensions driving increased defense spending and domestic supply chain emphasis. ADI's portfolio of RF, mixed-signal, power management solutions for radar, electronic warfare, communications, satellite systems benefits from the spending acceleration.

Assessment: Aerospace & defense is the under-modeled multi-year growth driver. The national sovereignty trend supports continued multi-year acceleration. We expect A&D to reach 12-14% of revenue (within industrial) by end-FY26.

5. Data Center +90% YoY — Optical + Power Equally Driving

"Communications represented 15% of revenue, finishing up 22% sequentially and 79% year-over-year. Data center, which now accounts for more than 75% of our communications revenue was up more than 90% year-over-year, driven by both our optical and power portfolios."
— Richard Puccio, CFO

Data center is now >75% of communications revenue (vs. ~50% at Q2 FY25) — structural mix shift toward AI infrastructure. The +90% YoY growth is fueled "pretty much equally" by optical and power portfolios. Both portfolios with strong orders + results.

Q3 FY26 outlook: data center expected to be "fastest growing sequentially" with comms growing low-to-mid teens sequentially. Implies data center sequential growth +15-20%, reaching ~$1.6-1.7B quarterly run rate.

Assessment: Data center is the structural AI infrastructure exposure driving ADI's growth profile rerating. The optical + power equal acceleration is structurally bullish — multi-driver vs. single-product dependency. We model data center reaching ~$6-7B FY26 (vs. ~$1B FY24).

6. Auto Surprise to Upside — China Pickup + BMS Recovery

"As we look at our auto business, right, I think I've talked about this before, it has compounded double digits for us for 10-plus years. … We saw some tariff-related pull-ins back in '25 that we thought might weigh on our first half. We certainly saw that unfold in Q1 with the below seasonal. And we were expecting … another below seasonal quarter as a result. However, it ended up favorable and reflected regular seasonality. And if you recall last quarter, and there was some skepticism, I think we thought — we indicated a stronger second half and that we would grow auto in '26. That strength, which we were expecting to come through in our second half, came a bit sooner, right, led by a material pickup in China during the back part of the quarter, and that drove a significant part of our Q2 upside."
— Richard Puccio, CFO

Auto surprised to the upside — China pickup in back half of quarter driving the Q2 outperformance. Strength was driven by content gains in GMSL, functionally safe power, A2B technologies + share gains in next-gen ADAS/infotainment. The compound double-digit growth track record continues (10+ years base case, mid-teens recent).

Notable: BMS revenue for EVs returned to year-over-year growth for the FIRST TIME in 2 years. EV penetration in Europe and China supportive. L3 ADAS expected in some China vehicles by end of year.

Assessment: Auto's structural framework is intact + the BMS-for-EVs recovery is the new multi-year growth driver. We expect continued auto growth through FY26 + FY27 with content + share + EV penetration combining.

7. Operating Margin 49% Record — Multi-Year Leverage Compounding

"Second quarter gross margin was 73%, up 180 basis points sequentially and 360 basis points year-over-year, driven by favorable mix, higher utilization and pricing. OpEx in the quarter was $872 million, resulting in an operating margin above the high end of our guidance or 49% up 350 basis points sequentially and 780 basis points year-over-year."
— Richard Puccio, CFO

The operating margin trajectory: 41.2% Q2 FY25 → 42.2% Q3 → 43.5% Q4 → 45.5% Q1 FY26 → 49% Q2 FY26 — extraordinary multi-quarter compound expansion. Gross margin 73% (record) +360bp YoY on favorable mix + utilization + pricing. The 49% operating margin is well above the prior 43-45% framework + the 45-48% updated framework — pushing toward 50%.

Critically, this is happening at full revenue scale ($3.62B/quarter = $14.5B annualized) with internal capacity continuing to be utilized + pricing tailwind of "a couple of points to growth rate" for FY26. The combination supports continued multi-year operating margin expansion.

Q3 FY26 gross margin guided to ~72.5% (down 50bp from Q2 on absence of one-time channel repricing benefit) — operating margin held at 49% midpoint. The peak gross margin may have been reached at 73% Q2, but operating margin can continue compounding through OpEx discipline + scale.

Assessment: Operating margin trajectory is the cleanest multi-year framework signal. We model FY26 operating margin at 47-48% (vs. 41-43% at FY25 entry) — meaningful structural expansion. FY27 could see operating margin maintaining 47-48% with potential upside to 49-50% if revenue continues growing.

8. Capital Return — $5B Trailing 12M (vs. $4.6B at Q1 FY26)

"Over the trailing 12 months, operating cash flow and CapEx were $5.1 billion and $0.5 billion, respectively. … Free cash flow over the trailing 12 months was $4.6 billion or 36% of revenue. Over the same period, we returned $5 billion to shareholders through dividends and share repurchases. This robust cash return reflects the strength of our innovation-driven financial model and our continued commitment to disciplined capital allocation."
— Richard Puccio, CFO

Trailing 12-month capital return $5B — accelerating from $4.6B at Q1 FY26 (+9% sequential quarterly increase in trailing 12-month run rate). Operating cash flow $5.1B (40% of revenue). Free cash flow $4.6B (36% of revenue, +200bp YoY margin). $1.3B Q2 alone returned to shareholders.

The framework: 100% FCF return over the long term, 40-60% to dividends, balance to share count reduction. Net leverage 0.8x — well below capacity. The capital return acceleration supports continued share count reduction + dividend growth.

Assessment: Capital return discipline is the multi-year framework anchor. We expect $5.5B+ FY26 capital return (+34% YoY) and $5.5-6B FY27. The combination of dividend growth (22nd consecutive annual increase) + buyback acceleration + continued FCF expansion compounds the total shareholder return profile.

9. Capacity for $20B 2030 Vision

"We've talked about the work we've done to double our internal capacity and obviously continue to expand our partnerships. And we are comfortable that we have the capacity to support up to the $20 billion that we've been talking about as part of our 2030 vision. And obviously, just as part of our normal refresh and CapEx management cycle, we're continuing to look at opportunities for increased efficiency, but also opportunities to build some additional internal capacity as needed."
— Richard Puccio, CFO

Capacity supports the $20B 2030 vision. Internal capacity more than doubled vs. pre-COVID. External supply optionality expanded geographically — supporting customer resiliency demands + ADI's flexibility. CEO emphasized geographical optionality giving more capacity + resilience.

At the current Q2 FY26 run rate ($14.5B annualized), ADI has meaningful capacity headroom — supporting continued multi-year growth to the $20B vision target. This is a critical structural advantage as competitors face capacity constraints during the AI infrastructure ramp.

Assessment: Capacity is the structural growth enabler. We model ADI reaching $17-18B FY27 revenue with continued capacity headroom supporting continued growth into FY28-29. The $20B vision could potentially be achieved one to two years ahead of 2030.

10. Pricing Discipline With Sticky Long-Cycle Products

"In terms of the longer term, we, as a company, we've got the highest ASP by far in the industry across the entire portfolio. We're at 4, 5x the industry average. And with each new generation of innovation that we're bringing to market, we capture more value. … And what's the stickiness, I think, was the other part of your question. The answer very simply is very sticky because our products have very long life cycles. And the most competitive part of the cycle for ADI is capturing the initial design-in. When we get that design, substitution is effectively 0 — competitive substitution is effectively 0. So with a long product life cycle portfolio, I think we're in a strong position to hold the gains that we make."
— Vincent Roche, CEO

ADI's pricing discipline is structurally durable. Highest ASP in the industry at 4-5x average. Each new generation captures more value. Long product life cycles (15-20 years industrial) create sticky design-ins with effectively zero competitive substitution post-design-in. The pricing actions implemented during FY26 absorb cost inflation — adding "a couple of points to our growth rate in '26" per CFO.

Assessment: Pricing discipline supports continued margin durability through any commodity cycle. The combination of (a) highest ASP, (b) long product life cycles, (c) zero post-design-in substitution, (d) ongoing value capture per generation is structurally bullish for ADI's gross margin trajectory.

11. Industrial Beyond ATE + A&D Grew >40% H1 FY26

"So today, I'd like to unpack more of that story for you by focusing on our industrial business beyond ATE and aerospace and defense, namely automation, electronic test and measurement, sustainable energy, health care and the broad market. Collectively, these markets have grown more than 40% in the first half of fiscal '26."
— Vincent Roche, CEO

The industrial breadth narrative is structurally important. Beyond the highly visible ATE + Aerospace & Defense growth, the industrial long-tail (automation + ETM + energy + healthcare + broad market) is growing >40% in H1 FY26. This is the structural compound growth thesis — multi-year content gains via new product platforms (smart power stage, E2B Ethernet bus, Acoustics platform, intermediate bus converters) compounding on cyclical recovery.

Assessment: The industrial breadth + depth combination is the multi-year compounder framework. We expect continued multi-quarter execution + multi-year content expansion supporting 30%+ YoY growth in industrial through end-FY26.

Analyst Q&A Highlights

Pricing Approach and Capacity Constraints

Lead analyst question on pricing approach (tactical and strategic) given competitor pricing actions in inflationary environment. CEO walked through ASP discipline (4-5x industry average), long product life cycle stickiness, and FY26 pricing impact (~2 points to growth rate).

Q: "I'm curious how you're approaching pricing both from kind of a tactical and strategic perspective. So on the tactical side, what are you assuming in terms of pricing for your current quarter outlook and just the second half, in general, and we have heard several of your competitors just start to send letters on increasing pricing. So how are you kind of viewing pricing in the near term? And then longer term, how sustainable will these pricing moves be?"
— Vivek Arya, Bank of America Securities

A: "We have increased prices during the course of this year. And essentially, what we're trying to do is just absorb the cost of inflation in our business. … In terms of the longer term, we, as a company, we've got the highest ASP by far in the industry across the entire portfolio. We're at 4, 5x the industry average. … And what's the stickiness, I think, was the other part of your question. The answer very simply is very sticky because our products have very long life cycles. And the most competitive part of the cycle for ADI is capturing the initial design-in. When we get that design, substitution is effectively 0."
— Vincent Roche, CEO

Assessment: Pricing discipline is operationally sound. ~2 points to FY26 growth rate from pricing — supports continued gross margin trajectory. Long product life cycles + zero substitution post-design-in supports sustained pricing gains over multi-year framework.

Data Center Growth Composition — Optical vs. Power

Question on growth trends within data center optical and power businesses. CFO confirmed equal-pace growth across both portfolios with strong orders and continued momentum.

Q: "The 90% growth that you talked about in the data center portion of communications, can you kind of update us on growth trends within both the optical and power side of that? And just how should we think about growth there going forward if you're doing tuck-in acquisitions that can expand the TAM on the power side?"
— Joseph Moore, Morgan Stanley

A: "With the data center piece being 75% of our comms and the 90% growth, actually, that is being fueled pretty much equally by similar growth rates across both the power and optical portfolios. So those are both continuing to trend very well with strong orders and strong results in the quarter. And given the momentum we're seeing, we really do expect this to continue to increase and be the fastest growing sequentially for us as we look out into the next quarter."
— Richard Puccio, CFO

Assessment: Data center growth is multi-driver — both optical and power growing similarly. Multi-driver framework supports continued multi-quarter acceleration vs. single-product dependency. Q3 FY26 data center expected as fastest-growing segment sequentially.

Gross Margin Trajectory and Ceiling

Question on Q3 FY26 gross margin guide composition and whether 73% represents a near-term ceiling. CFO confirmed 73% is near-term peak given utilization at maxed levels, with future revenue growth requiring more external outsourcing.

Q: "I wanted to drill just a little bit more into the gross margins. So you did — I understand the driver in the quarter, I understand the guidance. We think [indiscernible] in that range as sort of like ceiling given utilizations are maxed. It sounds like if you're going to get more revenue upside from here, that would suggest that you're going to have to do more outsourcing given the flexible manufacturing. I guess I'm just trying to — I guess, is that logic correct? And is that sort of, I guess, the local peak on gross margins we ought to be thinking about at least in the near term on the current revenue trajectory?"
— Stacy Rasgon, Bernstein Research

A: "Yes. I actually think that's the right way to think about it. Near term, this is probably the right way to think about the guided gross margin is the right way to think about it. Obviously, any more significant mix shift from a growth perspective could change that. But given where we see the outlook for Q3 and the potential trend into Q4, I think that's the right way to think about it."
— Richard Puccio, CFO

Assessment: 73% gross margin is near-term peak given internal capacity utilization. Future revenue growth requires more external manufacturing, slightly diluting gross margin. However, operating margin can continue expanding through OpEx discipline + scale benefits. We model FY26 gross margin at 72-72.5% (vs. 73% Q2 peak) and operating margin at 47-48%.

Empower Acquisition Rationale and Timeline

Question on the strategic logic of Empower acquisition given ADI's existing Linear + Maxim + Volterra power capabilities. CEO walked through the IVR + silicon capacitor TAM expansion in vertical power for AI accelerators.

Q: "I was sort of surprised by the Empower acquisition. I would have expected ADI's heritage strength there, but certainly, its acquisitions of Linear, Maxim, by extension, Volterra would have provided the company a big advantage and sort of all the technical capabilities and power management. So what did Empower have that ADI decided was so special that it needed to acquire instead of developing it internally?"
— William Stein, Truist Securities

A: "The power space is very dynamic. It has never been stressed from a technology portfolio standpoint for everybody. So I mean what did — so we're building intelligent power systems. We're using the breadth of the capabilities that we acquired over the Maxim and LTC eras. And our customers are putting enormous demands on us to solve their problems across the board, right from the ingress to the data center down to the chip. And the reason that we acquired Empower is that there was a gap in that portfolio and time is of the essence. And the biggest bottleneck that AI is creating for us today is we've got to solve for power density and delivery efficiency."
— Vincent Roche, CEO

Assessment: Empower acquisition is a strategic TAM expansion + speed-to-market move. The IVR + silicon capacitor technology was not developable internally on the timeline needed. The "time is of the essence" framing reflects the urgency of solving AI accelerator power density. We model Empower contributing $200-400M FY27 revenue with continued scaling toward $1B+ run rate by FY28-29.

Automotive Strength Composition and Inventory

Question on automotive strength composition and whether OEM inventory restocking is driving the upside. CFO walked through China pickup + BMS YoY recovery + lean OEM inventories framework.

Q: "I wanted to zoom in on auto a bit more, stronger than expected. … when you're looking at where the strength is coming from in auto today, are you seeing some restocking at those end customers? … And then any area that you would call out specifically as a growth driver in auto, just given the broader backdrop being weaker?"
— Thomas O'Malley, Barclays

A: "As we look at our auto business, right, I think I've talked about this before, it has compounded double digits for us for 10-plus years. … We saw some tariff-related pull-ins back in '25 that we thought might weigh on our first half. … However, it ended up favorable and reflected regular seasonality. … That strength, which we were expecting to come through in our second half, came a bit sooner, right, led by a material pickup in China during the back part of the quarter, and that drove a significant part of our Q2 upside. … And as we look out at Q3, right, we have record bookings, positive book-to-bill. And so we do expect to see above seasonal growth sort of in that mid- to high single digits. We are pretty confident in the outlook for the rest of the year for us in auto. Now on the inventory buildup question, we are not seeing that yet, right? After the digestion, which we talked about, particularly in BMS, we feel like automotive customers are fairly lean on inventory."
— Richard Puccio, CFO

Assessment: Automotive strength is structural (content gains + share gains + China L3 ADAS deployment + EV penetration) rather than inventory restocking. Lean inventory + record bookings + positive book-to-bill supports continued above-seasonal growth through FY26.

Capacity Headroom for Continued Growth

Question on internal and external capacity capacity given 30%+ growth rate. CFO confirmed capacity supports $20B 2030 vision with continued expansion optionality + external partnerships.

Q: "I think there's increasing concerns about capacity, especially external capacity, given what's happening on the digital side of things. So I don't know if you're willing to share with us numerically how much capacity you have internally and externally, meaning how much revenue you could generate? And how do you plan to grow that over the next few years, especially now that you're growing more than 30%."
— Tore Svanberg, Stifel Nicolaus

A: "We've talked about the work we've done to double our internal capacity and obviously continue to expand our partnerships. And we are comfortable that we have the capacity to support up to the $20 billion that we've been talking about as part of our 2030 vision. And obviously, just as part of our normal refresh and CapEx management cycle, we're continuing to look at opportunities for increased efficiency, but also opportunities to build some additional internal capacity as needed. … externally, we've got very strong relationships. And to date, we have not had troubles expanding across that."
— Richard Puccio, CFO; Vincent Roche, CEO

Assessment: Capacity is the multi-year growth enabler. ADI has structural capacity headroom to support continued growth to $20B vision and beyond. The competitive advantage vs. capacity-constrained peers is structural.

What They're NOT Saying

1. Specific FY26 full-year revenue or EPS guide. Quarter-by-quarter guidance only; explicit framework not articulated for full year.
2. Specific Empower revenue contribution by year. Minimal FY26; significant FY27 but no specific dollar quantification.
3. Specific FY27 framework articulation. Confidence increasing into 2027 but no specific revenue/EPS targets shared.
4. Specific data center quarterly run rate breakdown. "75%+ of comms" framing without dollar quantification at quarterly level.
5. Specific Empower closing timeline. Pending regulatory approval; no specific close date.
6. Specific industrial subsector quarterly revenue contribution. Qualitative "all subsectors up" framing without specific subsector dollar breakdown.
7. Specific HBM4 ATE contribution detail. Mentioned at Q1 FY26 but no specific HBM4 quarterly contribution at Q2.
8. Specific Q4 FY26 guide beyond seasonal commentary. Q3 guide specific; Q4 framed only as "low single digits sequentially" per typical seasonality.
9. Specific consumer Q3 moderation magnitude. "Down single digits sequentially" without quantification.
10. Specific tariff impact on cost structure. Pricing absorbing inflation; specific tariff dollar magnitude not disclosed.

Market Reaction

• Pre-print setup: ADI closed May 20, 2026 at ~$335. YTD +1%; trailing 30-day +1%; trailing 12-month +50%.
• After-hours / next-session move: Stock indicated +5-8% AH on the record print + Q3 guide + Empower acquisition. The combination of operational beat + raised forward outlook + strategic AI TAM expansion drives the move.
• Volume: Pre-market volume elevated to ~3-4x average — heavy volume reflecting the magnitude of the print.
• Peers: NXP, Microchip, Texas Instruments trading +2-3% on analog read-across. Power management peers (MPS, ONsemi) trading flat to +2% with Empower acquisition adding to the AI vertical power narrative.

Interpretive read: The market is processing the print as the cleanest single-quarter validation of the ADI multi-year compounder thesis. The combination of (a) record revenue + EPS + margin, (b) Q3 sequential ramp continuing, (c) Empower TAM expansion, (d) confidence in growth into 2027 increasing, (e) $5B trailing 12-month capital return — all support continued multiple expansion. We expect the stock to grind toward $355-$365 over the coming weeks as Sell-side models reset. The next major catalyst is the Q3 FY26 print in August 2026 + Empower closing announcement.

Street Perspective

Debate 1: Is the +37% YoY Run Rate Sustainable Into FY27?

Bull view: The combination of (a) industrial cyclical recovery extending multi-quarter with all subsectors growing, (b) data center +90% YoY structural AI infrastructure exposure, (c) automotive content + share + EV penetration compounding, (d) Empower TAM expansion in FY27 supports continued multi-quarter growth. Industrial "still well below prior cycle highs" framing implies multi-quarter cyclical upside remaining. Multi-year framework extending into FY27 with confidence increasing.

Bear view: +37% YoY is at the high end of historical analog cycle recoveries. The comparison base is FY25 lows; lapping the FY26 strong base in FY27 mechanically slows YoY growth rate. AI infrastructure capex moderation is a structural risk if hyperscalers reduce CapEx growth pace. Gross margin near 73% likely is the cycle peak — modest dilution into FY27 expected.

Our take: +37% YoY moderates to mid-to-high teens YoY in FY27 as the comparison base shifts. Multi-year compound growth of 15-20% supported by secular content gains + AI infrastructure exposure + automotive content + multi-year operating leverage. The thesis remains structurally bullish even with moderation.

Debate 2: Does the Empower Acquisition Justify the Premium Multiple?

Bull view: Empower's IVR + silicon capacitor technology is structurally important for AI accelerator power architecture. The "4x power footprint reduction + 10-15% data center power savings" economics are compelling for hyperscalers. ADI's manufacturing scale + go-to-market capability will accelerate Empower's penetration. $200-400M FY27 revenue contribution scaling to $1B+ by FY28-29. The acquisition strategically positions ADI as the indispensable hardware partner for AI accelerator power.

Bear view: Empower is a pre-revenue acquisition with execution risk. Integration challenges + ramping volume + competitive responses from MPS, Power Integrations, and others could compress Empower's contribution. Acquisition price likely in $500M-$1B range — strategic but with payback timeline depending on FY27-28 ramp execution.

Our take: Empower is a structurally appropriate strategic acquisition. The vertical power architecture is the future of AI accelerator power; ADI gaining position there is critical. We model Empower contributing $250M FY27 revenue and reaching $1B+ run rate by FY28-29. The deal is positive but execution-dependent.

Debate 3: Where Is the Gross Margin Ceiling?

Bull view: 73% Q2 FY26 gross margin is the new structural floor — favorable mix shift toward higher-margin industrial + comm segments + Empower IVR contribution + pricing actions support continued margin durability. Internal capacity utilization is supporting margin; external manufacturing optionality can be deployed without dilution. Gross margin can sustain in the 72-73% range through FY26 and beyond.

Bear view: 73% gross margin is the near-term peak with internal capacity maxed. Continued revenue growth requires more external manufacturing — gross margin dilution risk. Q3 FY26 gross margin guided to ~72.5% (50bp decline). Mix shift toward larger customers (data center hyperscalers, large industrial OEMs) may compress margin over time.

Our take: Gross margin sustains in 71-72.5% range through FY26 with slight moderation from Q2 peak. Operating margin can continue expanding through OpEx discipline + scale benefits even with modest gross margin moderation. Structural margin profile materially higher than pre-cycle baseline.

Model Implications & Thesis Scorecard

Model Update

• FY26 estimates (raised): Revenue $14.5-$15B (+32-35% YoY); operating margin ~47-48%; gross margin ~72-73%; non-GAAP EPS $11.50-$12.50; FCF $5.5B+ (38%+ revenue); capital return $5.5B+
• FY27 estimates: Revenue $17-18B (+15-20%); operating margin ~47-48%; non-GAAP EPS $13-14; Empower meaningful contribution; FCF $6-7B
• FY28 estimates: Revenue $18.5-19.5B (+8-10%); operating margin ~48-49%; non-GAAP EPS $14.50-15.50; FCF $7-7.5B
• Long-term framework: $20B revenue 2030 vision (potentially accelerated to FY28-29); operating margin 47-50%; FCF conversion 38-40% revenue; ~100% FCF return

Thesis Scorecard

Rating & Action

Maintaining Outperform with the highest conviction of the cycle. Q2 FY26 is the cleanest single-quarter print in ADI's recent history and fully validates every dimension of the multi-year compounder thesis. The "banner year" framing articulated at Q1 FY26 is no longer hypothetical — it is materializing across every line of the P&L with record revenue, record EPS, record gross margin, record operating margin, and a strategic Empower Semiconductor acquisition expanding the AI accelerator TAM. The multi-year framework is structurally extending into FY27 with management confidence "increasing." Capital return at $5B trailing 12-month is the highest level in ADI's history.

Fair value range widens to $360-$410 (from $340-$380 base case at Q1 FY26). Stock at ~$335 pre-print. We expect 5-8% appreciation toward $355 post-print as Street models reset. The fair value range reflects (a) FY26 EPS revised upward to $11.50-$12.50 (vs prior $10-$11), (b) FY27 EPS visibility into $13-$14 (with Empower contribution), (c) multi-year compounder profile at 30-33x forward EPS, (d) capital return acceleration supporting share count reduction tailwind, (e) Empower strategic TAM expansion in AI accelerator vertical power.

What would change our view:

• Upgrade toward conviction pick / strong buy framework: Q3 FY26 results above $4B / 50% OM / $3.45 EPS; FY27 framework articulated with revenue $17B+; Empower closing announced with FY27 contribution detail; HBM4 acceleration above expectations; multi-year automation execution milestones (humanoid robotics customer wins).
• Downgrade to Hold: AI capex moderation materializing (hyperscaler CapEx guide cuts); industrial cyclical normalization signs (channel inventory build); gross margin meaningful compression below 70%; Empower integration challenges; auto comp gain stalling.

Key watch items into Q3 FY26 (August 2026):

• Q3 FY26 results vs. $3.9B / 49% OM / $3.30 EPS guide
• Industrial sequential trajectory — multi-quarter growth continuing
• Data center sequential growth — fastest grower expected
• Empower acquisition closing timeline + initial revenue contribution
• Auto Q3 above-seasonal growth (mid-to-high single-digit)
• Consumer Q3 moderation magnitude (only segment down)
• FY26 trajectory updates / FY27 framework articulation
• Capital return pace continued at $1.3-1.5B/quarter
• Gross margin trajectory post-channel-repricing benefit
• HBM4 ATE contribution detail
• Automation + humanoid robotics + NVIDIA partnership milestones