1. Allegro MicroSystems, Inc. (NASDAQ:ALGM)
Number of Hedge Fund Holders In Q2 2024: 21
Allegro MicroSystems, Inc. (NASDAQ:ALGM) is a semiconductor fabrication company that makes lidar systems. Its ability to manufacture the systems that it sells provides the firm with cost advantages by enabling it to reduce end product prices. Allegro MicroSystems, Inc. (NASDAQ:ALGM) has significant exposure to the automotive industry, with $131 million of its $167 million revenue during Q2 2024 having come from the sector. This exposure also means that Allegro MicroSystems, Inc. (NASDAQ:ALGM) is suffering from the same industry slowdown as other automotive suppliers particularly as traditional car manufacturers struggle with strikes and focus on older models while EVs struggle to sell. The slowdown made Allegro MicroSystems, Inc. (NASDAQ:ALGM)’s revenue drop by 39.9% annually in Q2. However, as the firm generates a sizeable chunk of its revenue (69%) from magnetic sensors, once the industry normalizes, it could see an uptick in performance. Additionally, Allegro MicroSystems, Inc. (NASDAQ:ALGM) industry partnerships through its magnetic sensors could also let it land lidar deals.
Allegro MicroSystems, Inc. (NASDAQ:ALGM)’s management continues to focus on inventory management. Here’s what it shared during the Q2 2024 earnings call:
“So I would categorize our progress on inventory is as expected. Okay. And as we highlighted in our last, first quarter or the last earnings call, we think on average within the automotive channel, which is largely derived through tiers and contract manufacturers, inventories have come down roughly four weeks. Now some tiers and contract manufacturers are ahead of that somewhere, obviously behind. And I would say that every customer, every partner has deferring goals. But I would say broadly, we’ve made substantial progress in bringing inventories down. Within the industrial business which is largely sold through distribution. I would say it’s more of what regional lens, where some of the regions would stay with slightly higher level, which is what is typical, for example, in Japan.
But in places like China, in North America, we’ve made some substantial progress in bringing the inventory down. So overall, I would say I’m really pleased with the progress that’s been made. As you remember, we intentionally under shipped in Q1, with the aim of helping our distributor partners and our channel partners and tiers really worked down their inventory very aggressively. And so we think that that’s largely done. Some of this is going to, as I said in my prepared remarks, we’ll continue to see due to obviously, but we believe that we’ve made substantial progress here from the inventory balancing.”
ALGM is a strong lidar stock as per hedge funds. But our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than ALGM but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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