Allegro MicroSystems gets top pick status at Needham
Jan. 13, 2025 8:22 AM ET
By: Ravikash Bakolia, SA News Editor
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Needham named Allegro MicroSystems (NASDAQ: ALGM) as its Top Pick for 2025, while highlighting Semiconductor outlook for the year.
The firm also added Allegro — which is rated Buy with a $30 price target — to its Conviction List, while removing Astera Labs ( ALAB).
Analysts led by N. Quinn Bolton said 2024 saw a sharp divergence of the fortunes of semiconductor companies exposed to different end markets. Semiconductor suppliers exposed to the PC, smartphone, industrial and automotive sectors generally saw fundamentals under pressure through the year due to the combination of weak end-demand conditions and digestion of excess inventory.
Meanwhile, the AI segment experienced strong demand on accelerating deployments of AI infrastructure. As a result, AI driven semiconductor stocks significantly outperformed the S&P 500 Index and Non-AI driven semiconductor stocks in 2024, the analysts added.
In 2025, the analysts believe that the performance of AI and Non-AI stocks may start to see some mean reversion as growth in AI revenue begins to decelerate and fundamentals for analog/mixed-signal semiconductor companies begin to recover.
However, the analysts noted that they are not calling for this rotation from AI names to analog/mixed-signal or other semiconductor cycle plays to necessarily occur in early 2025. This is because the analysts believe that the near-term outlook for many analog/mixed signal stocks remains muted in the near-term, and they expect continued momentum in revenue and earnings for the AI related stocks.
The analysts think this rotation could begin in the Spring to early Summer time frame.
Bolton and his team noted that on the AI side, they believe the biggest risk to the stocks are high valuation multiples and decelerating revenue growth.
In addition, the analysts expect analog/mixed-signal stocks to begin to recover by mid-2025, which could lead to outperformance.
"With our belief the semiconductor market is likely to see some rotation from AI driven names to non-AI driven names in 2025, we are naming Allegro MicroSystems our Top Pick for 2025," said Bolton and his team.
In addition to Top Pick Allegro MicroSystems, the analysts said they remain positive on Silicon Laboratories ( SLAB), Lattice Semiconductor ( LSCC) and ON Semiconductor ( ON).
Shares of Allegro MicroSystems fell about 2% premarket on Monday. |
