Is Allegro Stock a Fabulous Play on Fabless EV Chips?

If you live in the United States news bubble, you often assume that anything that happens there applies to the other 95% of the global population. That’s especially true in the world of business and finance, which isn’t totally without merit. After all, the U.S. represents about a quarter of the planet’s total gross domestic product (GDP). But the country’s economic power is not evenly distributed. For example, ‘Merica accounted for just 10% of new electric vehicle (EV) registrations in 2023, according to the International Energy Agency (IEA), so how much stock can we really put into the doom-and-gloom reports about the demise of the EV market? 

For instance, the latest sign of weakness in the U.S. domestic EV market came (once again) from Tesla (TSLA), which is now pulling back on growing its EV charging network, despite $7.5 billion of U.S. government money on the table for EV charging infrastructure. Ostensibly, the retreat by Tesla implies that the EV market still sucks and shows no signs of improving any time soon. Yet we just heard an earnings report from a company that surpassed $1 billion in annual revenue, partly on the strength of its semiconductor chip sales to car companies. Allegro MicroSystems stock (ALGM) is the latest pick-and-shovel for retail investors interested in the electric vehicle market. Let’s take a look under the hood.

What Does Allegro Do?

Allegro designs and manufactures specialized computer chips called integrated circuits (ICs). It claims to be numero uno in developing magnetic sensor ICs, which are chips that can precis