Key Highlights

  • Allegro MicroSystems gapped up from Thursday's close of $36.38 to open at $38.15 and later traded as high as about $39.15, after RBC Capital initiated coverage with an Outperform rating and a $50 price target.
  • The gain gave the company a Market Value of roughly $7.22 billion, with the timing coinciding with a broad semiconductor rally following a weak September jobs report.
  • Allegro designs magnetic sensors and power chips used in cars, including electric vehicles, as well as industrial equipment and data-center systems.
  • RBC was active elsewhere in the sector too, with a separate bullish initiation on chip-inspection equipment maker Onto Innovation the same day.

Allegro MicroSystems (NASDAQ:ALGM) jumped on Friday, October 2, after RBC Capital initiated coverage of the chipmaker with an Outperform rating and a $50 price target. The stock gapped up from Thursday's close of $36.38 to open at $38.15 and later traded as high as about $39.15. That gave the company a market value of roughly $7.22 billion. The timing was ideal. Semiconductor stocks were among Friday's biggest winners after a soft jobs report cooled fears of another interest-rate hike.

A Fresh Voice on the Stock

Allegro designs magnetic sensors and power chips used heavily in cars, including electric vehicles, as well as in industrial equipment and data-center systems. Its sensors help measure things like current, position and speed, which makes them important in motor control and power management.

An initiation from a major broker can draw attention to a mid-sized company like Allegro, which does not always get the spotlight that the largest chipmakers enjoy. RBC's $50 target sits well above where the stock was trading on Friday, reflecting the firm's bullish view.

As with any analyst call, the rating reflects RBC's view, not a certainty. No other new company news beyond the broader semiconductor rally was found.

Chips Led the Charge

Allegro had plenty of company. Semiconductor stocks across the board rose as the weak payrolls report pulled yields and rate-hike odds lower in the morning.

Teradyne was the top gainer in the S&P 500. Texas Instruments, Microchip Technology, Monolithic Power Systems, Analog Devices and KLA all posted strong gains. Nvidia hit a record high during the session after Morgan Stanley named it a top semiconductor pick. Arm Holdings was one of the best performers in the Nasdaq-100.

RBC was active elsewhere in the sector too, with Onto Innovation rising on a separate bullish RBC initiation the same day.

Why the Jobs Report Mattered

The US economy added just 29,000 jobs in September, far below forecasts of about 84,000, and revisions erased a combined 60,000 jobs from the previous two months. The Unemployment rate ticked up and wage growth slowed.

That combination made it less likely that the Federal Reserve, which raised rates on September 16 for the first time since 2023, will hike again at its October meeting. Lower hike odds tend to help growth stocks, including chipmakers, whose values depend heavily on future earnings.

The Nasdaq Composite rose 319.27 points to 27,190.86, hitting an intraday all-time high but stopping short of a record close. The Nasdaq-100 did set a record close at 30,807.93. Information technology was the second-best S&P 500 sector behind consumer discretionary.

One note of caution: Treasury yields reversed after their early drop and closed higher, with the 10-year near its highest level since 2002.

Watching Whether the Gap Higher Holds

The key question is whether Allegro can hold its gap higher in the coming sessions or whether traders take quick profits. Semiconductor sentiment will be tested as Earnings season approaches, with ASML due in mid-October and big US banks reporting October 13 and 14. The Fed meets October 27 to 28, and any shift in rate expectations could swing chip stocks sharply. Investors will also watch whether other Brokers follow RBC with views of their own on the stock.