MW Could these 6 non-AI chip stocks be the next leg of the AI boom?
By Christine Ji and Britney Nguyen
Analog chips could be coming out of a cyclical downturn - just in time for the AI data-center frenzy
Analog chips have largely missed out on a broader semiconductor rally over the last two years.
After sending shares of memory-chip companies soaring, the artificial-intelligence trade could soon spotlight another area of the semiconductor industry: analog chips.
The term "analog" covers a wide range of chips that process physical signals such as pressure, sound and temperature. For example, an analog chip in a smartphone tells the main processor when a user is pressing the up or down button to control the volume.
Analog chips are used across a wide range of markets, from automobiles and industrial machinery to consumer electronics. And though analog chips are not new to data centers, some analysts see a growing opportunity as the AI boom coincides with a recovery in the analog market.
See more: These 'safer' chip stocks have boomed this year. Is it too late to buy in?
Shares of analog-chip makers have largely underperformed the iShares Semiconductor ETF SOXX over the past two years, even as AI tailwinds have lifted other semiconductor names. Instead, analog chips were swept into a cyclical downturn following a postpandemic supply glut.
In the decade leading up to the COVID-19 pandemic, analog-chip sales grew at double the rate of global GDP as smartphones and vehicles became increasingly advanced, Bank of America analyst Vivek Arya told MarketWatch. When shortages hit some areas of the market, analog-chip makers were able to raise prices, leading customers to hoard components. Sales peaked in 2023, and through all of 2024 into the first half of 2025, customers had been working down inventory that was stockpiled during the market tightness, Arya said.
The performance of six prominent analog-chip companies are displayed below. Due to the cyclical and capital-intensive nature of the industry, analysts value them using a ratio of enterprise value to free cash flow. Enterprise value includes a company's market capitalization and debt, minus cash.
Company 2-year price performance Current EV/FCF
Texas Instruments 43% 31.3x 50.5x
Analog Devices 94% 31.5x 29.0x
Microchip Technology -1% 31.9x 33.6x
NXP Semiconductors 4% 19.9x 21.5x
On Semiconductor -11% 17.0x 15.3x
Infineon Technologies 38% 45.0x 34.7x
iShares Semiconductor ETF 78% 32.8x 33.0x
Source: FactSet
The road to recovery
Recently, there have been green shoots among analog-chip stocks. In a note last week, Jefferies trader Jeffrey Favuzza highlighted that analog-chip shares recently hit a fresh high relative to the S&P 500 index SPX, although the group is still down 25% over the last two years.
A few different factors are influencing this resurgence. BofA's Arya observed that as inventories normalize across sectors like aerospace and defense, companies are once again placing new orders to replenish supplies.
Analysts took Texas Instruments' $(TXN)$ fourth-quarter earnings report as a compelling sign. The company set revenue guidance for the first quarter to between $4.3 billion and $4.7 billion, after reporting fourth-quarter revenue of $4.4 billion. Cantor Fitzgerald analyst Matthew Prisco noted that this forecast implied sequential growth - something that hasn't happened between the fourth and first quarters for Texas Instruments in 16 years.
Read on: Texas Instruments forecasts something that hasn't happened in 16 years, lifting its stock
Following that guidance, Arya upgraded Texas Instruments' stock from underperform to neutral.
The BofA analyst also wrote in a January note that "emerging growth in data-center power/connectivity" is fueling analog-chip stocks, as the chips are essential for high-speed optics, temperature management and power delivery.
While Arya believes the industry is benefiting from "a combination of industrial recovery and data-center growth," Jefferies's Favuzza wrote that it's difficult to determine whether the recent price action is due to strengthening fundamentals or capital flows fleeing the beaten-down software sector.
The AI data-center opportunity
The distinction between the data-center category and other lines of business is increasingly blurring, according to Arya, who noted that analog components can be sold to industrial firms that build the cooling and other infrastructure found in data centers. Data-center exposure has doubled for some chip makers, he said, rising from less than 10% of sales to nearly 20%.
High-precision analog chips are used to process physical signals with extreme accuracy, and have become crucial for improving energy efficiency in data centers. Power-discrete chips, on the other hand, are similar but used in high-voltage and high-current systems, such as vehicles and industrial machinery. Microcontrollers are mostly used in data centers for managing power supply and monitoring temperature and other physical metrics.
Analog components are also needed in advanced chip-testing systems, such as those made by Teradyne $(TER)$. And they sit on motherboards alongside AI chips like Nvidia's (NVDA) to regulate power delivery. Beyond the server rack, Arya noted that analog chips from firms like Infineon Technologies (XE:IFX) (IFNNY) and Texas Instruments are critical to data centers' industrial machinery and cooling solutions.
The data-center impact is reflecting in financial results. Texas Instruments broke out data-center revenue for the first time on its fourth-quarter earnings call last month, reporting $450 million of AI revenue out of $4.4 billion of total revenue. While a small percentage overall, its data-center revenue grew 50% year over year. Growth in the business is "likely to track hyperscaler [capital expenditures]," Jefferies analyst Blayne Curtis wrote in a January note.
However, the lack of a full recovery in the automotive segment still poses a major overhang for analog semiconductors, overshadowing their burgeoning data-center businesses. And overall revenue strength and business stability still varies from company to company. Arya's neutral rating of Texas Instruments stems from the company's slower overall sales growth relative to peers.
On the other hand, Arya upgraded Microchip Technology (MCHP) to buy from neutral - citing strength in the company's high-speed data switches, which are used to connect graphics processing units to central processing units and storage to efficiently transmit information. Microchip Technology's exposure to the aerospace and defense markets also offers protection from the more intense boom-and-bust cycles of consumer electronics, he added.
Both Arya and Curtis named Analog Devices their top large-cap analog idea. Analog Devices beat Wall Street expectations earlier this week thanks to strength in its industrial and data-center divisions, a trend that Curtis believes will continue.
Analog Devices' AI revenue accelerated 50% year over year in the most recent quarter and achieved an annualized run rate of $2 billion. Despite a growth slowdown in the auto and consumer segments, management still guided for above-consensus revenue of $3.5 billion for the current quarter. In a note following the earnings call, Curtis maintained his buy rating on the stock and raised his price target to $410, from $300 previously.
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-Christine Ji -Britney Nguyen
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February 21, 2026 08:00 ET (13:00 GMT)
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