Conestoga Capital Advisors, LLC on Allegro MicroSystems, Inc.
Thesis
Conestoga initiated Allegro because electronic content is growing in vehicles through electrification and advanced driver-assistance systems. Long vehicle qualification cycles make it difficult to replace its sensing and power chips once integrated. Data-center cooling and power supplies provide a second growth market, reaching a record 17% of sales in the June quarter. Seven consecutive quarters of rising bookings indicate improving demand.
“Bookings have risen for seven straight quarters, and we believe rising chip content in vehicles and growing data-center demand to support long-term growth”
Key risks
- Automotive and industrial semiconductor demand remains exposed to manufacturing cycles.
- A slowdown in vehicle electrification or advanced safety adoption could reduce chip-content growth.
- Data-center orders and high semiconductor valuations may prove cyclical.