Chip designer Allegro MicroSystems (NASDAQ:ALGM) announced better-than-expected revenue in Q2 CY2026, with sales up 27.5% year on year to $259.2 million. Guidance for next quarter’s revenue was optimistic at $270 million at the midpoint, 2.1% above analysts’ estimates. Its non-GAAP profit of $0.23 per share was 8.8% above analysts’ consensus estimates.
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Allegro MicroSystems (ALGM) Q2 CY2026 Highlights:
- Revenue: $259.2 million vs analyst estimates of $251.4 million (27.5% year-on-year growth, 3.1% beat)
- Adjusted EPS: $0.23 vs analyst estimates of $0.21 (8.8% beat)
- Adjusted EBITDA: $62.05 million vs analyst estimates of $60.91 million (23.9% margin, 1.9% beat)
- Revenue Guidance for Q3 CY2026 is $270 million at the midpoint, above analyst estimates of $264.4 million
- Adjusted EPS guidance for Q3 CY2026 is $0.25 at the midpoint, below analyst estimates of $0.25
- Operating Margin: 9.8%, up from -1.3% in the same quarter last year
- Free Cash Flow Margin: 5.4%, down from 25.1% in the same quarter last year
- Inventory Days Outstanding: 128, down from 130 in the previous quarter
- Market Capitalization: $7.86 billion
“We began fiscal 2027 with strong momentum, delivering our sixth consecutive quarter of sales growth. Fiscal first quarter sales were $259 million, representing a 27% increase year-over-year. GAAP earnings per share improved to $0.08 in fiscal first quarter 2027 from a $0.07 loss per share in fiscal first quarter 2026. Non-GAAP EPS grew for the fifth consecutive quarter to $0.23, increasing more than 2.5x over the first quarter of fiscal 2026. These results were led by data center, which reached a record 17% of total sales, and by continued strength in xEV and ADAS,” said Mike Doogue, President and CEO of Allegro MicroSystems.
Company Overview
The result of a spinoff from Sanken in Japan, Allegro MicroSystems (NASDAQ:ALGM) is a designer of power management chips and distance sensors used in electric vehicles and data centers.
Revenue Growth
A company’s long-term sales performance is one signal of its overall quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Thankfully, Allegro MicroSystems’s 7.3% annualized revenue growth over the last five years was decent. Its growth was slightly above the average semiconductor company and shows its offerings resonate with customers. Semiconductors are a cyclical industry, and long-term investors should be prepared for periods of high growth followed by periods of revenue contractions.
Long-term growth is the most important, but short-term results matter for semiconductors because the rapid pace of technological innovation (Moore’s Law) could make yesterday’s hit product obsolete today. Allegro MicroSystems’s recent performance shows its demand has slowed as its revenue was flat over the last two years. 
This quarter, Allegro MicroSystems reported robust year-on-year revenue growth of 27.5%, and its $259.2 million of revenue topped Wall Street estimates by 3.1%. Beyond the beat, this marks 5 straight quarters of growth, implying that Allegro MicroSystems is in the middle of its cycle - a typical upcycle generally lasts 8-10 quarters. Company management is currently guiding for a 26% year-on-year increase in sales next quarter.
Looking further ahead, sell-side analysts expect revenue to grow 17.1% over the next 12 months. While this projection indicates its newer products and services will spur better top-line performance, it is still below average for the sector.
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Product Demand & Outstanding Inventory
Days Inventory Outstanding (DIO) is an important metric for chipmakers, as it reflects a business’s capital intensity and the cyclical nature of semiconductor supply and demand. In a tight supply environment, inventories tend to be stable, allowing chipmakers to exert pricing power. Steadily increasing DIO can be a warning sign that demand is weak, and if inventories continue to rise, the company may have to downsize production.
This quarter, Allegro MicroSystems’s DIO came in at 128, which is 4 days above its five-year average. These numbers suggest that despite the recent decrease, the company’s inventory levels are higher than what we’ve seen in the past.
Key Takeaways from Allegro MicroSystems’s Q2 Results
It was good to see Allegro MicroSystems beat analysts’ EPS expectations this quarter. We were also excited its operating income outperformed Wall Street’s estimates by a wide margin. Zooming out, we think this was a good print with some key areas of upside. The stock traded up 3.7% to $43.79 immediately after reporting.
Indeed, Allegro MicroSystems had a rock-solid quarterly earnings result, but is this stock a good investment here? What happened in the latest quarter matters, but not as much as longer-term business quality and valuation, when deciding whether to invest in this stock. We cover that in our actionable full research report which you can read here (it’s free).