Allegro MicroSystems' (ALGM) data center business fundamentals remain intact with strong momentum, RBC Capital Markets said Friday in a report initiating coverage of the stock with an outperform rating.

Revenue from data center accounts is on track to more than double in fiscal 2027, as the company's high-efficiency motor drivers benefit from the demand in power supplies and network switching equipment, despite the increasing adoption of liquid cooling, RBC said.

High-speed current sensors benefit from stronger growth in hyperscaler platforms, with revenue building to more than 20% of the data center segment in fiscal Q4 from around zero at the start of fiscal 2026, the report said.

RBC expects the momentum to continue as the content opportunity per rack increases to more than $425 in future AI configurations with higher power, up from $150.

Long-term content expansion in the automotive segment is expected to underpin revenue growth of around 20% with about 200 basis points of gross margin expansion over the next two years, the report said.

RBC has $50 price target on Allegro stock.

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