Ron Westfall on ADI, Analog Chip Strength & Outlook for Tech Sector

now at some of the analog chip stocks in our tech spotlight. Ron Westfall VP Networking infrastructure Hyper Frame Research is with me now. They've certainly been an exciting group volatile as well names. We saw a dip in the chips. Names like some of these like analog devices, Texas Instruments, chip Onsemi you're watching these closely. Tell me about some of the pros and cons of this group. Sure. I believe the pros first, in terms of why these chip sets are a solid investment, certainly through the end of 26, let alone further out. First of all, this entire segment, despite the recent sell off, still has a total addressable market over $100 billion. So that in itself right there tells you there's still a tremendous upside in terms of how can the chip set stocks actually perform better after this brief sell off? And that includes I'll put a spotlight on one segment specifically. That's the automotive electronics. And that's where we see expanding silicon content on each vehicle, especially EVs. We're seeing more EVs being driven across other parts of the world, certainly on a global basis. But also it's important because of the safety features and battery management system management. So that I think is something that in itself is going to help, you know, the analog devices, the XPS, let alone Infineon and STM in terms of, you know, their prospects for the rest of this year. Now, what's going on the con side is that, yes, there is a sector wide sell off, but it's not unique to analog chips. I think it's a fact that when you look at the SoCs index based in Philadelphia is the AI cap Ex that's going on in terms of, you know, rising some of the more higher profile stocks, you know, such as Nvidia, such as Broadcom. That is because they're selling to hyperscalers and there's been no let up in demand there. Whereas there's been some softness recently in segments such as consumer electronics automotive electronics because of factors like the high cost of memory as well as geopolitical uncertainties. And what's been touched on the fact that interest rate uncertainties is this segment is a little more sensitive to that. So that is, you know, the snapshot as to what's going on, but nobody panicked. This is really a solid segment overall. Yeah. I mean and that's the whole thing. I mean, because it's a solid segment overall because I was going to ask you when it came to automotive and industrial headwinds, you were talking about the automotive part of the story, and you said those companies that are heavily exposed to automotive and and also power management did face some headwinds. Names like Onsemi and NXP semi. And so there are some lingering channel inventory concerns. Obviously for the long term you're not worried. But how how long is near term and long term in your opinion? Yeah. I would say this will probably go through the rest of Q3. However Q4, I think we will definitely see more stimulation in terms of all of these different stocks performing a bit better. I'll actually call out analog devices specifically. There can be a slight caveat because they're in the process of acquiring empower semiconductors for $1.5 billion. And so whenever you have a major acquisition going on, there is that uncertainty factor that can cause some to pause a bit. However, again, I think when it comes to this acquisition, what they're getting is that vital integrated Voltage regulator technology or IVR technology that is enabling voltage conversion to happen closer to the chip. And that's definitely important in terms of AI data center environments or any other environment where AI processing has to occur. And so while there might be that nonunique concern about, okay, here's an acquisition, it's a major one, will they pull it off successfully? I believe they can. I believe they have a solid track record in this area. Plus, I think the payoff will be tremendous if they can actually deliver something at to 20% improvement in energy efficiency in these settings. And that by itself, I think, will just make analog devices all the more attractive, you know, Q4 and beyond. And so when I think about AI overall, you did note the slower than expected monetization that people were expecting more faster that you talked about some profit taking, possibly in analog devices and also chip ahead of earnings. But I do think about the AI infrastructure segments and how let's go into that a little more about the guidance and some of the concerns and revenue headwinds when that may change, because you said that now does bring some cautiousness on the group. And these names in particular. Yeah, I think it's something that part of it is perception, I think, and we've talked about this before, is that when you're talking about, say, some of the hyperscalers out there and you talk specifically, for example, Oracle and has over half trillion RPO, there can be, you know, a bit of, say, lack of patience. Okay. It's like, okay, those contracts haven't been literally translated or monetized into the balance sheet yet, but it's there. It's locked in contractually and that will happen. So that, I think is for some specific stocks, some perception issues. But I think part of it is, yeah, the expectations have been so sky high that there's just been some dialing back. Okay, maybe we just want to take a breather, do some profit taking. This is not unique to AI infrastructure across the board, let alone the chipsets segments on the AI infrastructure side as well as the analog side. And so I think this will actually prove out because according to our estimates, when it comes to CapEx on, say, just on the cloud infrastructure build out, that is going to continue to expand in the double digit cager and zone. And so what that means is that the investments are in place. Enterprises are picking up their investments into AI specific technologies. And so I think this is simply a hiccup. This is not going to alter the fact that these total addressable markets are in the 100 billion plus dollar range, just for the rest of this year. You look further out. Those numbers just keep going up because the AI investments will continue to pay off. They'll become more directly monetized, and I think they'll be less the perception concern out there and more, I would say, tangible results that investors can be even more confident about. But I don't think there's going to be any bubble bursting, certainly in this year, let alone over the next two years. All right. Well, you know, I always keep an eye on the Sox and the SMH. And so that really wraps up a lot of this group. And as you said, some of it could be just sort of a blip or a hiccup. And in the long term, you do like the group and think it's much needed overall. In the big picture, I will say that the Sox right now, month to date is up about 3.5%. So we'll see. But as you noted, just the recent dip this week, down 5.5%. Ron Westfall, VP,