Is ALGM a good stock to buy? We came across a bullish thesis on Allegro MicroSystems, Inc. on r/GrowthStockInvesting by GrowthInvestingWPR. In this article, we will summarize the bulls’ thesis on ALGM. Allegro MicroSystems, Inc.’s share was trading at $60.16 as of June 25th. ALGM’s trailing and forward P/E were 62.61 and 59.52 respectively according to Yahoo Finance.
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Allegro MicroSystems (ALGM) is a fabless semiconductor company specializing in power and sensing integrated circuits for motion control, with growing exposure to automotive electrification, AI infrastructure, and industrial automation. The investment thesis centers on the belief that the market is underappreciating the company’s accelerating growth opportunities, particularly in data centers.
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While the latest quarter’s revenue of $229 million grew 29% year over year, management commentary suggests further acceleration ahead. The business is already profitable, generating $27 million in GAAP EBITDA, $8 million in net income, and a healthy 47% gross margin, supporting the view that it can expand earnings as revenue scales. Allegro remains a leader in automotive sensing, with its products embedded in EV motors, power steering, and transmissions, while increasing semiconductor content per vehicle provides a durable growth driver.
The more compelling upside, however, lies in AI infrastructure, where its high-voltage gate drivers, fan drivers, and current sensors are gaining traction in server rack power applications. Management highlighted that industrial growth will lead upcoming quarters, with more cooling fans per rack increasing Allegro’s dollar content and long-term content per rack expected to rise from approximately $150 to $425.
The company is also well positioned to benefit from emerging humanoid robotics, where each robot could incorporate roughly 150 sensing ICs and 50 power ICs, creating another meaningful avenue for future growth. Additional tailwinds include improving factory efficiencies and supplier cost reductions that should support margins.
Although Allegro carries a $285 million term loan against $163 million of cash, improving profitability is expected to steadily reduce leverage. With guidance implying approximately 22% year-over-year growth next quarter and the potential for stronger future guidance as AI and industrial demand accelerates, the company appears fairly valued at current levels while still offering meaningful upside should its automotive content expansion, early data center penetration, and emerging robotics exposure continue to materialize, with any near-term pullback potentially enhancing the risk-reward profile and creating a more attractive entry point.
Previously, we covered a bullish thesis on Texas Instruments Incorporated (TXN) by The Wolf of Harcourt Street in January 2025, which highlighted its manufacturing capacity investments and long-term competitive positioning despite cyclical headwinds. TXN’s stock price has appreciated by approximately 68.30% since our coverage. GrowthInvestingWPR shares a similar view but emphasizes on Allegro MicroSystems’ AI infrastructure and robotics-driven growth opportunities.
Allegro MicroSystems, Inc. is not on our list of the 40 Most Popular Stocks Among Hedge Funds. As per our database, 34 hedge fund portfolios held ALGM at the end of the first quarter which was 28 in the previous quarter. While we acknowledge the risk and potential of ALGM as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than ALGM and that has 10,000% upside potential, check out our report about this cheapest AI stock.
Disclosure: None.
