ALGM: Auto And Data Center Cycles Will Drive Upside Potential

Analysts have raised their price target on Allegro MicroSystems from $37 to $49, citing expectations that the company will outpace its prior growth model. They point to robust auto and data center cycles, inventory restocking, and expanding data center opportunities as drivers of stronger revenue growth and improved profit margins.

Analyst Commentary

While the latest price target increase underscores growing optimism around Allegro MicroSystems, not all market observers are uniformly positive. Bearish analysts remain cautious on the pace and durability of the company’s growth, particularly as expectations for auto and data center demand move higher.

These more conservative views emphasize the risk that current valuation already reflects a best case scenario for margin expansion and revenue acceleration. They also highlight the potential for execution missteps as Allegro scales into new markets and navigates a more competitive landscape.

Bearish Takeaways

• Bearish analysts warn that the recent rerating in the share price may be running ahead of fundamentals, arguing that the current valuation leaves limited room for error if growth normalizes or cyclical tailwinds fade.
• Some caution that aggressive expectations for auto and data center demand could set a high bar for execution, raising downside risk if design wins are delayed, pricing comes under pressure, or customers moderate orders after the current restocking phase.
• Concerns are also centered on margin sustainability, with skeptics questioning whether recent profitability gains are fully repeatable once supply conditions normalize and competition for key programs intensifies.
• A subset of bearish analysts highlight longer term growth risks, noting that any slowdown in data center infrastructure spending or shifts in auto electrification timelines could challenge current forecasts and justify more conservative price targets.

What's in the News

• Issued third quarter 2025 guidance calling for total net sales between $215 million and $225 million, implying approximately 24 percent year over year growth at the midpoint (Company guidance)
• Launched the ACS37100, described as the industry's first commercially available magnetic current sensor with 10 MHz bandwidth, based on the company's XtremeSense TMR technology (Company product announcement)
• Positioned the new ACS37100 sensor for fast switching GaN and SiC based systems in electric vehicles, clean energy power conversion, and AI data center power supplies by delivering 50 ns response time and low noise performance (Company product announcement)
• Highlighted reinforced isolation up to 5 kV and automotive Grade 0 operating temperatures for the ACS37100, targeting demanding automotive and industrial environments (Company product announcement)

Valuation Changes

• The Fair Value Estimate has risen significantly from $23.00 to $35.00 per share, implying a notably higher intrinsic value assessment.
• The Discount Rate has increased modestly from 9.67 percent to approximately 10.69 percent, reflecting a slightly higher required return or perceived risk.
• Revenue growth assumptions have edged higher from about 14.9 percent to roughly 15.9 percent annually, signaling a modestly more optimistic growth outlook.
• The net profit margin forecast has increased substantially from around 14.0 percent to about 22.5 percent, indicating a much stronger expected profitability profile.
• The future P/E multiple has risen slightly from roughly 31.6x to 32.3x, suggesting a marginally higher valuation multiple on projected earnings.