My April 2026 portfolio summary video will be released tomorrow after the market closes. This month saw 7 names added to the portfolio!
One of these new stocks I am most enthusiastic about is Allegro MicroSystems $ALGM
Allegro MicroSystems $ALGM is a fabless semiconductor that I believe the potential to outperform versus the market expectations. I currently have around a 1.5% position in this Allegro.
Revenue in the latest quarter was 229M +29% yoy and the highest growth rate of the past year. Normally I would be looking for a bit more revenue growth starting out, but based on some details in the conference call, I am expecting an acceleration in the business. The company is already profitable with GAAP EBITDA of 27M, net income of 8M, and gross margins of 47% in the latest quarter. The market cap is 9B currently and I see this company as being fairly valued currently.
Headquarters for the business is in New Hampshire with 4,060 employees. They were founded in 1990 and IPO’d in 2020. For the most part this has not been a high volatility stock as the price has roughly doubled in six years and not had that wide a price range.
The product is power and sensing integrated circuits for motion control with an emphasis on energy efficiency. Their sensors are embedded in cars with EV motors, power steering, and transmission. Many of their sales are to Chinese auto makers as well which rely on the product. Content per vehicle is going up as the company gets more content per car.
Where this company gets interesting to me is the company’s expanding sales to the data center. They have high voltage gate drivers and fan drivers which are going into AI server racks. The market has seemed keen on companies which can re-brand themselves as AI hardware company and I see Allegro fitting the mold.
Some take aways from their latest conference call include,
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Higher dollar content in auto
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High speed current sensors are ramping in data center power supply applications
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Motor drivers for cooling fans are a majority of data center wins currently with “current sensors” securing meaningful wins and “driving future content gains”
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Advanced humanoid robots include 150 Allegro sensing ICs and 50 power ICs
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Management said, “So for the March quarter, it will absolutely be led by Industrial. So industrial will be up in the March quarter.” (data center)
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More fans going into data center racks sees Allegro’s dollar content going up in Industrial
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Mentions dollar content per rack going from $150 now to $425 in the future
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Getting cost reductions from vendors, “which is really, really helpful”
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Seeing factory efficiencies
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“Humanoids are where the real dollar content is”, “the dollar content is high”
One draw back I see to the company is paying off their debt. They have 163M of cash, but also a term loan of 285M that they are paying off. I’m not too concerned about this balance sheet aspect as I expect them to be able to wind down the debt over the next couple of years with increased profitability.
Guidance is for 230-240M in the next quarter which is +22% at the midpoint. I’m not expecting a massive over performance on the current quarter’s numbers, but I do think this company will be able to give strong guidance based on management’s commentary.
Allegro is set to report earnings in the pre-market on May 7, and I will be re-evaluating from there on the report the company delivers.