ALGM Q1 Earnings Call Highlights AI Data Center Growth

ALGM Expands AI Data Center Opportunity

President and CEO Michael Doogue said Allegro began fiscal 2027 with strong momentum, reporting its sixth consecutive quarter of sales growth. He highlighted AI infrastructure as a major growth area, with data center revenue reaching a record 17% of total sales in the quarter.

The company said data center sales more than doubled from fiscal 2026 levels, supported by demand for current sensors, fan driver ICs and future power solutions. Current sensors represented 22% of first-quarter data center sales and were growing faster than motor driver products.

Allegro reported first-quarter sales of $259 million, up 27% year over year, while non-GAAP EPS increased to $0.23 from $0.09 in the prior-year period. Results exceeded the Zacks Consensus Estimate of $0.21 EPS and $253 million revenue.

Allegro Builds Content Across AI Systems

Doogue said next-generation AI servers create opportunities beyond rack growth because higher power levels require more sensing and control content. He noted that current sensors and fan drivers account for a significant portion of potential AI rack content expansion.

During Q&A, a Wells Fargo analyst asked about data center growth assumptions within second-quarter guidance. Doogue said customer signals remain strong and pointed to continued content growth as a driver of the business.

Management also highlighted future opportunities from isolated gate drivers and other power technologies. Doogue said isolated gate drivers could become a more meaningful contributor over an 18-to-24-month timeframe.

ALGM Advances Automotive Growth Strategy

Automotive remained a core growth area, with first-quarter automotive sales increasing 15% year over year to $165 million. Management attributed gains to expanding content in xEV and ADAS applications.

Doogue said Allegro is benefiting from rising semiconductor content per vehicle, driven by electrification, advanced safety systems and electromechanical braking technologies. He noted that automotive design wins increased 30% year over year.

A Barclays analyst questioned recent automotive trends and competitive dynamics. Doogue responded that Allegro continues to see strong customer activity, supported by design wins, bookings and increased content opportunities across global markets.

ALGM Targets Robotics Expansion

Allegro also identified robotics and automation as emerging growth opportunities. Doogue said the company expects robotics and automation to contribute 3% to 4% of fiscal 2027 sales.

The company secured current sensor wins with Chinese humanoid robot manufacturers and inductive position sensor wins with a North American robotics customer. Management said robotics applications benefit from Allegro’s existing expertise in safety-focused motion control.

A Needham analyst asked about the longer-term robotics opportunity. Doogue said growth will depend on adoption rates and the number of joints and motion-control points incorporated into future robotic systems.

Allegro Improves Margins Through Mix

CFO Derek D’Antilio said first-quarter non-GAAP gross margin reached 51.1%, while operating margin improved to 19.4%. He attributed margin expansion to operating leverage, product mix and early pricing actions.

The company is targeting gross margins of 55% and beyond over time. Management cited factory efficiency improvements, product bill-of-material transitions and selective pricing actions as contributors to margin expansion.

During Q&A, Wolfe Research asked about pricing actions. D’Antilio said most automotive contracts reset annually, while selective pricing actions in distribution began late in the first quarter and are expected to contribute more meaningfully in the second half of the fiscal year.

ALGM Provides Positive Outlook

For the second quarter of fiscal 2027, Allegro expects sales between $265 million and $275 million, representing 26% year-over-year growth at the midpoint. The company forecast non-GAAP EPS of $0.23 to $0.26.

Management expects both automotive and industrial markets to deliver mid-single-digit sequential growth. The company also highlighted continued backlog expansion and increasing bookings as indicators of demand strength.

The company ended the quarter with $170 million in cash, $285 million in term debt and $115 million in net debt. Free cash flow was $14 million during the quarter.

Zacks Signals

Allegro carries Zacks Rank #3 (Hold), indicating that earnings estimate revisions are currently balanced. The Zacks Rank is designed to help identify stocks with stronger potential over the next one to three months based on changes in earnings estimates. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The stock has a Value Score of F, Growth Score of A, Momentum Score of D and VGM Score of C. Zacks Style Scores range from A to F, with higher grades representing stronger characteristics within each style category. The Zacks Rank may change as analysts revise earnings estimates following new company developments.

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