Summary
– US news bubble often makes assumptions that apply globally, especially in business and finance
– US only accounted for 10% of new EV registrations in 2023, questioning reports on EV market demise
– Allegro MicroSystems is a key player in manufacturing semiconductor chips for EVs and ADAS
– Allegro competes with Wolfspeed and Infineon, offering different technologies and market positions
– Allegro stock shows promise but faces challenges in revenue growth and margins, leading to uncertainty in guidance
Article
Allegro MicroSystems is a semiconductor company that designs and manufactures specialized computer chips for various applications, including electric vehicles, advanced driver assistance systems, factory automation, and clean energy technologies. The company’s magnetic sensor ICs help improve energy efficiency and extend the driving range of EVs, while its power management ICs regulate electrical power in various systems. Allegro’s hardware is vital for applications like solar inverters, EV chargers, energy storage systems, 5G, and data centers that require durability and high performance.
Allegro faces competition from companies like Wolfspeed and Infineon Technologies, who also specialize in manufacturing semiconductor components for green energy sectors like EVs and renewable energy systems. While Allegro is a market leader in magnetic sensor ICs, Wolfspeed and Infineon offer different technologies and materials. Allegro’s transition to a fabless manufacturing model in 2016 has resulted in healthy gross margins, which gives the company an advantage in weathering macroeconomic challenges. Allegro aims to capture more of its serviceable addressable market, which includes growth markets like EVs, ADAS, and green technologies.
Despite facing macroeconomic headwinds that have affected its revenue growth, Allegro has seen positive results in its e-mobility segment, which includes electrified vehicles and ADAS. The company expects double-digit growth in this segment to continue, with a significant portion of its design wins coming from e-mobility contracts. Allegro has invested in advanced technologies like TMR and plans to dominate the magnetic sensing market, with an addressable market close to $1 billion by the end of the decade. However, the company’s Q1-2025 guidance indicates a significant year-over-year drop in revenue, primarily due to macroeconomic challenges and excess inventory.
Allegro’s stock has shown volatility since its IPO in October 2020, with fluctuations in response to earnings reports and market conditions. The company’s focus on EV chips and exposure to green themes makes it an attractive pick-and-shovel play on EVs. While Allegro stock appears to be fairly valued based on a simple valuation ratio, uncertainty in the macroeconomic landscape and the company’s dependence on key markets like China raise caution. Retail investors should be prepared for a bumpy ride as Allegro navigates through its first major revenue downturn as a public company.
In conclusion, Allegro MicroSystems presents a potential opportunity for investors interested in the semiconductor industry, particularly in the EV sector. The company’s focus on innovative technologies for electric vehicles and other green applications positions it well for future growth. However, challenges related to macroeconomic conditions and competition from other players in the market may impact Allegro’s performance in the near term. Investors should carefully monitor developments in the EV market and Allegro’s strategic initiatives to assess the company’s long-term prospects.
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