Diodes Incorporated (DIOD) | The Buildout — AI Infrastructure
The Verdict
Diodes makes the surrounding circuitry inside electronic systems: discrete, analog, mixed-signal, standard logic, and multichip products that handle power management, protection, timing, switching, and sensing. In AI infrastructure, those parts attach across server motherboards, power delivery, networking switches, storage, and optical interconnect rather than in the GPU itself, making the company a broad second-order supplier to AI system builds.
| Market Cap | — |
| Revenue (TTM) | $1.6B |
| Revenue Growth | +16.0% |
| EBITDA Margin (TTM) | 12.7% |
| Net Cash | $304M |
| Earnings Beats | 5 of 7 |
| P/E (TTM) | — |
| EV/EBITDA (TTM) | — |
What We Like
- Q3 2026 revenue midpoint is $510 million, implying 30% YoY and 14% QoQ growth; GAAP gross margin midpoint is 35%, about 190 bps above Q2.
- Q2 computing revenue grew 33% YoY and 18% QoQ, and management says AI-related applications, especially server motherboards, will drive the majority of Q3 growth.
- Management estimates total AI infrastructure content opportunity at about $267 per platform, versus $109 per AI server platform.
- Automotive reached a record 21% of Q2 product revenue, with revenue up 37% YoY and 15% QoQ.
- Balance sheet holds about $442 million in cash and short-term investments against about $40 million of total debt.
What We’re Watching
- Computing and consumer were 45% of Q2 product revenue and are both exposed to the memory shortage; adjacent evidence calls it a growing H2 2026 PC/smartphone risk.
- Communications revenue fell 7% QoQ and about 3% YoY on soft China smartphone demand, with networking only partly offsetting.
- Actual AI revenue remains undisclosed; the $267 content figure is an estimate, not reported sales.
- GFAB and SPFAB meaningful utilization improvement is not expected until 2027–2028, while the back end is already almost fully loaded.
The operating thesis is strengthening: revenue growth is accelerating into Q3, gross margin is inflecting to a 35% midpoint, and demand looks sell-through-driven rather than inventory-stuffed. The main open questions are durability—whether memory-shortage pressures reach computing and consumer and whether supply-disruption share gains persist.
Earnings Beat
In Q2 2026, Diodes reported revenue of $445.5 million, up 22% year over year and 10% sequentially, with GAAP gross margin of 33.1%. GAAP net income was $46.6 million and included an $18.7 million after-tax unrealized investment gain; non-GAAP adjusted net income was $32.5 million, or $0.70 per diluted share, above the $0.60 guidance midpoint.
| Metric | Q1 FY2026 | Q4 FY2025 | Q1 FY2025 | YoY |
|---|---|---|---|---|
| Revenue | $406M | $392M | $332M | +22.1% |
| Gross margin | 31.8% | 31.1% | 31.5% | +30bps |
| EBITDA | $55M | $48M | $37M | +48.1% |
| EPS | $0.33 | $0.22 | $-0.09 | −443.1% |
| Channel inventory weeks | Below 11–14 week normal range | Lower end of 11–14 week range | n/a | — |
For the third quarter, we expect revenue to increase to approximately $510 million, plus or minus 3%. At the midpoint, this represents a 30% increase year-over-year and a 14% increase sequentially. GAAP gross margin is expected to expand to 35%, plus or minus 1%. Non-GAAP adjusted EPS is expected to be $1.05, plus or minus $0.10.— Brett Whitmire, CFO, August 5, 2026
Management tone: Management tone shifted from recovery language in Q1 to stronger acceleration language in Q2, citing record global POS and strengthening demand. Executives were direct on demand quality and capacity but declined to provide AI revenue size or a fab-level P&L.
Management Guidance
For Q3 2026, management guided revenue to approximately $510 million, plus or minus 3%, GAAP gross margin to 35%, plus or minus 1%, and non-GAAP adjusted EPS to $1.05, plus or minus $0.10. The revenue midpoint implies 30% YoY and 14% QoQ growth; the margin midpoint implies about 190 bps of sequential expansion. Management also reaffirmed a full-year 2026 tax rate of approximately 18%, plus or minus 3%.
Trajectory
Revenue has stepped from $405.5 million in Q1 2026 to $445.5 million in Q2, with Q3 guided to a $510 million midpoint; that implies a move from 22% YoY in Q2 to 30% YoY at the Q3 guide midpoint. Gross margin moved from 31.8% to 33.1% and is guided to 35%, supported by cost actions, mix, and utilization. The main offsets are communications, which fell 7% QoQ, and memory-shortage exposure across computing and consumer, which together were 45% of Q2 product revenue.
The Model
The model projects FY+1 revenue of 1773.5M with EBITDA of 275M, a 15.5% margin, and FY+2 revenue of 2000M with EBITDA of 354M, a 17.7% margin. The near-term anchor is the Q3 revenue and margin guide plus AI-led computing and automotive demand; the FY+2 path reaches $2,000M, matching the scale of management's stated $2 billion annual revenue target, with margin expansion tied to fab utilization and cost leverage.
| Metric | FY2025 | Next FY (E) | Following FY (E) |
|---|---|---|---|
| Revenue | $1.5B | $1.8B | $2.0B |
| YoY Growth | — | +19.7% | +12.8% |
| EBITDA | $179M | $275M | $354M |
| EBITDA Margin | 12.1% | 15.5% | 17.7% |
Projections are the median of 5 independent model runs. The model’s revenue sits 2.5% below analyst consensus.
For Q3 2026, management guided revenue to approximately $510 million, plus or minus 3%, GAAP gross margin to 35%, plus or minus 1%, and non-GAAP adjusted EPS to $1.05, plus or minus $0.10. The revenue midpoint implies 30% YoY and 14% QoQ growth; the margin midpoint implies about 190 bps of sequential expansion. Management also reaffirmed a full-year 2026 tax rate of approximately 18%, plus or minus 3%.
What Could Go Right — and Wrong
- AI infrastructure wins convert to revenue across server motherboards, power, networking, storage, and optical interconnect.
- ElevATE closes and delivers about $50 million in first-12-month revenue with revenue growing faster than 20% annually.
- Automotive share gains continue from the record 21% mix and 37% YoY Q2 growth.
- GFAB and SPFAB utilization improve earlier than 2027–2028, pulling gross margin above the Q3 35% midpoint.
- Memory shortage stays contained, allowing computing and consumer to keep growing.
- Memory shortage worsens into H2 2026, pressuring computing and consumer.
- Communications stays weak after falling 7% QoQ and about 3% YoY on China smartphone softness.
- Supply-disruption share gains fade as tightness normalizes, reducing second-source qualification and pricing support.
- ElevATE acquisition does not close or its $50 million first-year revenue and >20% CAGR targets disappoint.
- GFAB/SPFAB utilization stays underloaded past 2027–2028 while the back end remains almost fully loaded.
Looking Ahead
The next 12 months turn on whether the Q3 acceleration holds. Management has guided a 30% YoY Q3 step-up, expects AI-related applications to be the majority driver, and promises new AI products over the next few quarters. Beyond that, the proposed ElevATE close, GFAB/SPFAB loading, and the memory-shortage outcome across computing and consumer will determine whether the operating leverage story extends into 2027–2028.
- Q3 2026Q3 earnings report — Tests $510M revenue midpoint, 35% GAAP gross margin, and $1.05 non-GAAP EPS.
- Next few quartersNew AI product releases — Timing, PCIe, and power products aimed at expanding AI BOM content and sockets.
- No closing date statedElevATE acquisition close — Would test $50M first-year revenue and >20% CAGR guidance.
- 2027–2028GFAB/SPFAB utilization inflection — Meaningful fab loading improvement expected; no separate fab P&L is disclosed.
Financials
Annual Summary
| Metric | FY2024 | FY2025 | TTM | YoY |
|---|---|---|---|---|
| Revenue | $1.3B | $1.5B | $1.6B | +13.0% |
| Gross Margin | 33.2% | 31.2% | 31.3% | 205bps |
| EBITDA | $188M | $179M | $2.6B | -4.4% |
| EBITDA Margin | 14.3% | 12.1% | 12.7% | 221bps |
| Net Income | $44M | $66M | $86M | +50.8% |
| Free Cash Flow | $46M | $137M | $1.2B | — |
| Net Cash | — | — | — | — |
Key Ratios (Trailing)
- P/E TTM—
- EV/EBITDA TTM—
- EV/Revenue TTM—
- Price/FCF TTM—
- Gross Margin (TTM)31.3%
- EBITDA Margin (TTM)12.7%
- Net Margin (TTM)5.5%
- ROIC2.7%
- FCF Conversion65.3%
- SBC / Revenue1.7%
The Company
Diodes makes standard semiconductor products—discretes, analog, mixed-signal, standard logic, multichip devices, wafers, frequency control products, and contact image sensors. These are the surrounding components that handle power management, protection, timing, switching, and sensing across automotive, industrial, computing, consumer, and communications systems. The business is reported as one segment, and in AI infrastructure the parts attach to server motherboards, power supplies, networking switches, storage, and optical interconnect rather than the processor itself.
The company operates a flexible hybrid manufacturing model with wafer fabs in Shanghai, Wuxi, and South Portland, plus a Scotland fab referenced on earnings calls as GFAB; assembly and test sites are in Shanghai, Chengdu, Wuxi, and Neuhaus am Rennweg, Germany. Wafer production is about 50/50 internal versus outsourced, and roughly 75% of assembly/test is done internally.
Business Segments
Competitive Landscape
Diodes describes its competitive set as including larger suppliers such as Infineon, Epson, Kyocera, Nexperia, NXP, ON Semiconductor, Renesas, Texas Instruments, and Vishay.
- Infineon TechnologiesNamed in the FY2025 10-K among larger competitors.
- NexperiaNamed in the FY2025 10-K among larger competitors.
- ON SemiconductorNamed in the FY2025 10-K among larger competitors.
- Texas InstrumentsNamed in the FY2025 10-K among larger competitors.
- Named in the FY2025 10-K among larger competitors.
Supply Chain
Diodes sits mid-chain, buying wafers and materials and selling standard semiconductor parts to direct customers and distributors. The supplied neighbor read-through does not record any adjacent company mentioning Diodes by name.
More on DIOD: Earnings recap