Analog Devices shareholders should brace for a bumpier ride despite the chip maker's latest strong results, according to Needham.

Earlier this week, Analog Devices (ticker: ADI) reported solid earnings and issued financial forecasts that were more upbeat than Wall Street expected. But management also said for the first time that uncertainty about the economy began to hit the business near the end of its fiscal third quarter, the three months ended July 30. Cancellations of orders have risen slightly, it said.

Those comments were a worrying sign for Needham analyst Quinn Bolton. On Thursday, he lowered his rating on the chip maker to Hold from Buy, citing Analog Devices' valuation and the potential for a downturn in the industry.

"We see the start of a larger slowdown," he wrote. "In our opinion, bookings/orders are likely [to] continue to fall and cancellations are likely [to] increase, creating a headwind for the shares over the next several quarters."

ADI now trades at roughly 20 times the per-share earnings Quinn expects for 2023, a level he said is difficult to justify given that the company may be entering a worsening environment. The company's valuation averaged 20 times forward earnings over the past 10 years, Quinn said.

ADI shares rose slightly to $170.34 in early trading Thursday. The stock has declined by 3% this year, versus a 24% drop in the iShares Semiconductor ETF (SOXX), which tracks the performance of the ICE Semiconductor Index.

Analog Devices' business has been more resilient than other semiconductor companies because of its exposure to the automotive and industrial segments, where demand has been better than in other areas. It sells a broad-based portfolio of chips and has more than 125,000 customers.

But according to Needham, Analog Devices likely won't be immune to a weakening economy.