Chip designer Allegro MicroSystems (NASDAQ: ALGM) reported Q4 CY2025 results beating Wall Street’s revenue expectations, with sales up 28.9% year on year to $229.2 million. Guidance for next quarter’s revenue was optimistic at $235 million at the midpoint, 2.7% above analysts’ estimates. Its GAAP profit of $0.04 per share was in line with analysts’ consensus estimates.

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StockStory’s Take

Allegro MicroSystems delivered a quarter that was well received by the market, driven by robust demand in both its automotive and industrial segments, particularly in data center applications. Management cited content gains in electric vehicles (XEV) and advanced driver-assistance systems (ADAS) as key contributors, while the data center business set a new record, making up 10% of total sales. CEO Michael Doogue highlighted, “The rapid expansion of higher power AI servers continues to drive increased demand for our fan driver ICs,” and pointed to multiple design wins in both automotive and industrial markets as a reflection of Allegro’s strong execution and rising market presence.

Looking forward, Allegro MicroSystems’ guidance is anchored on expectations for continued growth in industrial markets and stable performance in automotive, with management anticipating the next quarter to be led by industrial sales and ongoing strength in data center. The company believes recent product launches, such as its new current sensors and isolated gate driver ICs, will deepen its competitive advantage and expand market share in emerging applications like robotics and high-voltage power systems. CFO Derek D'Antilio noted, “We expect gross margins to be between 49-51%...showing the operating leverage in our business,” signaling confidence in both operational discipline and product mix improvements.

Key Insights from Management’s Remarks

Allegro’s management attributed the quarter’s above-consensus performance to momentum in automotive content gains, data center expansion, and innovation in power and sensor ICs.

• Automotive content expansion: The company benefited from increased adoption of XEV (electric vehicles) and ADAS (advanced driver-assistance systems), supported by design wins in electronic power steering and steer-by-wire systems for automakers in North America, China, and Europe. These wins are expected to drive higher future revenue per vehicle as electrification and automation trends accelerate.
• Data center sales acceleration: Data center applications reached a new high, now representing 10% of sales, fueled by demand for Allegro’s fan driver ICs and high-speed current sensors. Management emphasized that the proliferation of AI servers is increasing the number and complexity of cooling solutions, with Allegro’s products enabling improved efficiency and power density.
• New product innovation: The launch of a current sensor capable of measuring up to 200 amperes in a compact form factor drew broad customer interest, particularly for XEV and data center markets. Management highlighted this as a competitive differentiator, enabling higher power density and efficiency in next-generation platforms.
• Industrial and robotics pipeline: Allegro reported strong customer engagement in robotics, especially through its Robotics Roadshow in the US, Japan, and China. The company noted high content opportunities in advanced humanoid robots, with some designs incorporating up to 150 Allegro sensor ICs and 50 power ICs per unit.
• Distribution and geographic mix: Sales through distribution channels grew, with notable strength in Asia. However, management acknowledged that a higher proportion of sales in China, where margins are lower, modestly tempered gross margin expansion despite overall revenue growth.

Drivers of Future Performance

Management expects future growth to be driven by industrial market demand, ongoing expansion in data center, and further penetration into automotive electrification.

• Industrial and data center momentum: The company projects that industrial markets, led by data center demand for fan drivers and current sensors, will drive revenue growth in the coming quarters. Management is optimistic about a multi-year content expansion opportunity, especially as new products like isolated gate drivers ramp up.
• Automotive stability with upside potential: While automotive sales are expected to be flat to slightly down due to seasonal factors like Chinese New Year, Allegro sees strong bookings and backlog in XEV and ADAS segments. Design win activity remains high, supporting management’s view that automotive will return to growth as inventory levels normalize and electrification accelerates.
• Operating leverage and margin improvement: Management believes that product mix shifts toward higher-margin current sensors and isolated gate drivers, along with cost controls and factory efficiencies, will support margin expansion. Risks include geographic sales mix and potential pricing pressure, but the company expects gross margins to remain healthy in the near term.

Catalysts in Upcoming Quarters

In upcoming quarters, the StockStory team will be watching (1) the adoption rate of Allegro’s new current sensors and isolated gate driver ICs in both data center and automotive applications, (2) the pace of design win conversion in robotics and advanced industrial markets, and (3) the company’s ability to expand gross margin through product mix improvements and factory efficiencies. Execution on these fronts, along with maintaining pricing discipline, will be key markers of ongoing performance.

Allegro MicroSystems currently trades at $37.99, up from $34.55 just before the earnings. Is there an opportunity in the stock?Find out in our full research report (it’s free).

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