Allegro MicroSystems (ALGM) heads into its next earnings report with a stronger setup than it had just a few weeks ago, according to Morgan Stanley, as recent results from analog and microcontroller peers point to improving demand across several of the company’s key markets.
In a report given to TheStreet, Morgan Stanley said strong results from analog and MCU companies, including direct peers, have helped support an 11% move in Allegro shares over the last five days. The firm said it does not expect Allegro to be an exception to the broader trend, though it also acknowledged that the bar has moved higher since earnings season began.
Morgan Stanley rates Allegro Overweight with a $51 price target, compared with the stock’s May 1 closing price of $48.98. The firm’s industry view on semiconductors remains Attractive, and its analysis points to a company that could continue to recover as demand in automotive, industrial, data center, and robotics improves.
Morgan Stanley noted that large-cap global analog stocks had risen 17% over the prior two weeks, compared with a 5% gain for the SOX semiconductor index, while Allegro shares climbed 21% over the same period. That move leaves investors looking for more than a standard in-line report from a company that has already benefited from stronger peer commentary.
Morgan Stanley expects a beat-and-raise structure
Morgan Stanley said it expects Allegro to post “another strong quarter” after the firm upgraded the stock in February and after investors largely digested the reset that came from the company’s analyst day. The firm expects a similar “beat & raise” structure, with the June-quarter outlook likely to provide the stronger upside surprise.
For the March quarter, Morgan Stanley models revenue of $236 million, up 3.1% from the prior quarter and in line with consensus. The firm also expects non-GAAP gross margin of 50.2% and earnings per share of 17 cents, compared with Street estimates of 50.2% gross margin and 16 cents in EPS.
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By segment, Morgan Stanley expects Allegro’s automotive revenue to reach $164 million in the March quarter, while industrial revenue is expected to come in at $72 million. For the June quarter, the firm models revenue of $245 million, up 3.9% sequentially, with automotive revenue at $169 million and industrial revenue at $76 million.
Morgan Stanley’s June-quarter gross-margin estimate is slightly below consensus, at 50.6% compared with the Street at 51.2%. The firm said customer negotiation impacts that hit in the March quarter can take one to two quarters to cycle through, though it also noted that negotiations had progressed better than expected during Allegro’s last earnings call.
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Automotive and industrial demand remain key drivers
Allegro’s exposure to automotive remains important to the story, with Morgan Stanley noting that roughly 70% of the company’s revenue is tied to the end market. Recent peer results, however, suggest that automotive demand has been better than feared for analog companies, helped by content gains, design-win ramps, and limited evidence of pull-forward.
Morgan Stanley pointed to Melexis, one of Allegro’s closest peers, as a positive read-through after the company reiterated its fiscal 2026 guide and cited improving ordering dynamics across geographies. The firm also highlighted momentum in brake-by-wire and steer-by-wire applications, which can provide a two-to-three-times content uplift per vehicle for Allegro.
Morgan Stanley said TDK’s commentary was positive for magnetic sensors, while Delta Electronics highlighted continued strength in data-center cooling solutions, a category tied to motor-driver demand. Those trends line up with Morgan Stanley’s broader view that secular growth in data centers and robotics can support Allegro beyond a short-term cyclical recovery.
Risks remain after the stock’s rally
Morgan Stanley still flagged two areas investors should watch closely heading into the print. The first is the automotive backdrop, where the firm said two downward S&P light-vehicle production revisions this year could eventually weigh on demand, even though companies are not yet seeing a significant impact.
The second risk is input cost inflation. Morgan Stanley said peers continue to flag pricing pressure in parts of the supply chain, including foundry and input costs, and noted that UMC accounts for roughly 50% of Allegro’s wafers. Cost pass-through could help offset some pressure, though investors are likely to focus on whether Allegro can sustain order momentum while showing progress on margin recovery.
Morgan Stanley’s base case calls for Allegro revenue to recover ahead of the broader industry, with revenue growth of 21.7% in 2026 and 20.9% in 2027. The firm’s $51 price target is based on 35 times calendar 2027 non-GAAP EPS of $1.45, leaving the stock with additional upside if the recovery continues and margins improve.
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