AI-driven structural recovery of global analog chips: Why is this round of domestic substitution more worthy of attention than before?

What Happened? — The Global Analog Chip Industry Moves from an "L-Shaped Bottom" to AI-Driven Structural Recovery

1. Analog chip fundamentals are recovering from an "L-shaped bottom":

If digital chips are the brain of electronic devices, responsible for computation and decision-making, then analog chips are the "senses" and "blood vessels" of electronic devices — they are the bridge connecting the real physical world to the digital world. Instructions from digital chips need to be converted into voltage and current through analog chips to drive device operation.

If we define 2022 to 2024 as one of the longest and most widespread active inventory destocking cycles in the past decade, then 2025 to 2026 can be considered the early-to-mid stage of recovery for the analog chip industry. However, this is not the "broad-based rally" where all product lines grew synchronously in the past, but rather a typical AI-driven structural recovery.

Over the past two years, the global analog chip industry has faced simultaneous inventory destocking pressures from three major end-markets: automotive, industrial, and consumer electronics. In particular, inventories in industrial automation, communication equipment, and traditional consumer electronics customers remained persistently high, causing leading global manufacturers to experience revenue declines for multiple consecutive quarters. The inventory adjustment period in the industrial sector even exceeded historical averages.

Since the beginning of 2025, downstream customer inventories have largely returned to normal levels. Morgan Stanley's distributor survey shows that customer and distributor inventories have become leaner, the proportion of respondents planning to further cut inventories has decreased significantly, while the willingness to restock in analog, MCU, and connector product lines has increased. Most large analog manufacturers have indicated that channel inventories have returned to healthy levels, global distributor inventory turnover days have dropped significantly, and the industry has shifted from "destocking" to a phase of "restocking + real demand recovery."

Morgan Stanley points out that analog chip fundamentals are moving from an "L-shaped bottom" toward recovery: channel inventories are leaner, pricing pressure is easing, and supply of mature process and power-related products is selectively tightening.

(The table above shows the cycle history of analog chips. Data indicates that the analog chip upcycle has lasted for seven quarters, with current quarterly revenue 2% lower than the previous peak and shipments 4% higher than the previous peak, suggesting further room for recovery.)

2. What is different about this demand recovery?