Analog semiconductors have been on a tear. Large-cap players in the space are up 17% over the past two weeks, outpacing the broader SOX index by a wide margin. And Allegro Microsystems has run even harder than that.
That is exactly what has Morgan Stanley sounding a note of caution heading into the company’s upcoming earnings print.
Morgan Stanley’s take on Allegro Microsystems
Morgan Stanley rates Allegro Microsystems overweight with a price target of $51, based on 35x its CY27 non-GAAP EPS estimate of $1.45, Morgan Stanley noted. The stock closed at $48.98 on May 1, giving the company a market cap of approximately $8.97 billion, according to Yahoo Finance.
The firm’s May 4 research note is constructive but measured. Morgan Stanley expects Allegro to deliver a beat-and-raise quarter, consistent with the pattern seen across analog and microcontroller peers this earnings season. But the bank is clear-eyed about what has changed since that backdrop emerged.
“The bar becomes increasingly higher for Allegro,” Morgan Stanley noted, pointing to the stock’s 21% surge over the past five trading days. That move outpaced the large-cap analog group, which was itself up 17% over the same period versus the SOX at just 5%.
The Allegro numbers Morgan Stanley is working with
For the March quarter, Morgan Stanley models revenue of $236 million, up 3.1% quarter-over-quarter, nearly in line with the Street estimate of $236 million at 2.9% growth. Non-GAAP gross margin is modeled at 50.2%, matching the Street, Morgan Stanley noted. EPS is estimated at $0.17 versus the Street’s $0.16.
The June quarter is where the divergence from consensus becomes more notable. Morgan Stanley models revenue of $245 million, up 3.9% quarter-over-quarter, slightly below the Street’s $247 million at 4.6% growth.
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The more meaningful gap is on gross margins. Morgan Stanley forecasts 50.6% for the June quarter versus the Street’s 51.2%, Morgan Stanley noted.
The bank attributes that conservatism to the timing of customer negotiations, which can take one to two quarters to cycle through. The bank added that negotiations had progressed better than expected on the last earnings call and that its estimate may prove conservative.
On full-year estimates, Morgan Stanley’s FY26 EPS of $0.92 compares to the Street’s $0.86, and its FY27 EPS of $1.45 compares to the Street’s $1.39, Morgan Stanley noted. Those are both above consensus, which is part of what supports the overweight rating despite the near-term caution on margins.
What Allegro’s sector peers are showing
Morgan Stanley’s constructive stance is grounded in positive read-throughs from Allegro’s key sector peers.
TDK, a magnetic sensors peer, reported higher automotive magnetic sensor sales, pricing pass-through for magnetic input costs, and a meaningful increase in sensor application products profitability, Morgan Stanley noted.
Melexis, the most direct comparable, reiterated its full-year 2026 guidance and pointed to improving customer ordering dynamics and momentum in brake-by-wire and steer-by-wire applications, which carry a 2x to 3x content uplift per vehicle for Allegro. Delta Electronics highlighted continued strength in data-center cooling and automotive fans.
Across the broader group, the pattern is consistent: better-than-feared automotive demand, broadening industrial strength, record data center revenue at select peers, and improving long-tail customer demand, Morgan Stanley noted.
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Two risks heading into the Allegro print
Morgan Stanley flags two specific areas of risk for Allegro.
The first is the automotive production backdrop. With roughly 70% of Allegro’s revenue tied to the automotive sector, two downward light vehicle production revisions this year are worth monitoring, Morgan Stanley noted.
There is also a geopolitical angle: Proposed 25% tariffs on European vehicles could introduce volatility, though Allegro’s Europe revenue exposure, at low-teens percent, is lower than peers at low-20s percent.
The second is input cost inflation. With UMC accounting for approximately 50% of Allegro’s wafer supply, foundry cost pressure is worth monitoring, Morgan Stanley noted. The latest UMC commentary appears less severe than feared, but investors will remain focused on whether Allegro can show progress on margin recovery alongside order momentum.
Key verified figures from the Morgan Stanley note:
- Rating: Overweight, price target $51.00, based on 35x CY27 non-GAAP EPS of $1.45
- March quarter revenue estimate: $236 million, up 3.1% quarter-over-quarter; Street at $236 million, 2.9%
- June quarter revenue estimate: $245 million, up 3.9% quarter-over-quarter; Street at $247 million, 4.6%
- June quarter gross margin estimate: 50.6% versus Street at 51.2%
- Full-year 2026 EPS estimate: $0.92 versus Street at $0.86
- Full-year 2027 EPS estimate: $1.45 versus Street at $1.39
- 5-day stock performance: Up 21% versus large-cap analog up 17% and SOX up 5%
- Automotive revenue share: Approximately 70% of total revenue
- UMC wafer supply share: Approximately 50%
- Europe revenue exposure: Low-teens percent, below peers at low-20s percent
Source: Morgan Stanley May 4 note
Allegro’s longer-term case remains intact
Despite the near-term caution, Morgan Stanley’s long-term view on Allegro remains positive. The firm sees the stock in a recovery phase, with earnings power not yet returned to prior peak levels.
The bull case of $70 assumes 40x CY27 non-GAAP EPS of $1.75, supported by share gains with Chinese EV makers and continued data-center momentum, Morgan Stanley noted.
The longer-term investment case rests on three structural drivers: growing EV and ADAS penetration driving content per vehicle higher, expanding magnetic sensing and power demand tied to industrial automation, and continued data center motor driver demand.
The message is not bearish. It is a reminder that in a sector that has already rallied hard, the earnings bar has risen just as fast as the stock. For Allegro investors, the question is whether the company can deliver results that justify a stock trading at 35x forward earnings after a 21% surge in five days.
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