Astera Labs ALAB shares have plunged 36.2% since it reported fourth-quarter 2024 results on Monday. The decline is attributed to concerns over the lower-than-expected gross margin of 74.1% in the fourth quarter of 2024, driven by a shift in product mix toward hardware-based solutions like the Aries and Taurus Smart Cable Modules. 

However, Astera Labs reported record revenues of $141 million, a 25% increase sequentially and 179% year-over-year growth. This performance was driven by strong demand for its Aries PCIe Retimer and Taurus Ethernet Smart Cable Module products, which saw high demand for AI scale-up and scale-out connectivity.

ALAB shares have surged 94.6% in the trailing six-month period, outperforming the broader Zacks Computer & Technology sector’s return of 10.3% and the Zacks Electronics - Semiconductors industry’s appreciation of 25.3%.

ALAB Beats Sector, Industry

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The outperformance can be attributed to strong demand for its Aries and Taurus Smart Cable Modules, which drove higher revenue and contributed to solid growth despite the shift toward lower-margin hardware products.

ALAB Capitalizes on AI Growth and PCIe Retimers Market

ALAB’s increasing demand for AI platforms, particularly those leveraging high-performance GPUs and AI accelerators, drove strong design wins and sales for products like Aries Retimers, Taurus Smart Cable Modules, and Scorpio Fabric Switches.

In the fourth quarter of 2024, ALAB introduced its new portfolio of Scorpio Smart Fabric Switches, purpose-built for AI infrastructure at the cloud scale. The P-Series features GPU-to-CPU/NIC/SSD PCIe Gen 6 connectivity, and the X-Series is for back-end AI accelerator clustering. The switches are currently shipping in pre-production quantities. 

The company’s robust PCIe retimers under the Aries product line highlight significant growth opportunities. With increasing demand for advanced connectivity solutions, Aries retimers are positioned as a critical enabler for businesses looking to enhance the performance of its AI systems.

In the fourth quarter of 2024, ALAB expanded its widely deployed Aries PCIe/CXL Smart DSP Retimer portfolio with the introduction and initial shipment of Aries 6 Retimers, the industry’s lowest power PCIe 6.x/CXL 3.x Retimer solution, enhancing bandwidth and reach for complex AI and compute topologies.

ALAB’s expanding portfolio is helping it fend off competition from other industry players like Broadcom AVGO, which is also making strong efforts in the PCIe retimers market. Broadcom shares have gained 42% over the trailing six-month period.

Astera Labs Powers AI Advancements With Top Chipmakers

Astera Labs has made a significant impact on the AI industry with collaborations with top chipmakers, including NVIDIA NVDA, Advanced Micro Devices AMD, Micron Technology, and Intel.

Astera Labs products are used in NVIDIA’s GB200 product. The PCIe switch is expected to play a key role in future NVIDIA products. This collaboration further emphasizes Astera Labs' influence in the development of advanced AI technologies.

AMD also continues to utilize Astera Labs solutions to enhance the efficiency and scalability of its AI-driven products. The partnership strengthens both companies’ positions in the AI market, fueling advancements in next-gen technologies.

ALAB Initiates Strong 1Q25 Guidance

ALAB’s continued demand for its AI-related products and an expanding customer base are expected to drive top-line growth. 

The company continues to expect strong growth from the Aries product family across diverse AI platforms, ramping Taurus SCM for 400-gig applications and additional preproduction shipments of Scorpio P-Series switches.

For the first quarter of 2025, ALAB expects revenues between $151 million and $155 million.

Non-GAAP earnings are expected to be between 28 and 29 cents per share.

ALAB’s Earnings Estimates Show Upward Movement

The Zacks Consensus Estimate for first-quarter 2025 revenues is pegged at $153.76 million, indicating a year-over-year increase of 135.6%.

The Zacks Consensus Estimate for first-quarter 2025 earnings is pegged at 27 cents per share, which has increased by a couple of pennies in the past 30 days. The figure calls for a year-over-year increase of 170%.

Find the latest EPS estimates and surprises on Zacks Earnings Calendar.

ALAB Stock is Currently Overvalued

ALAB shares are currently overvalued, as suggested by its Value Score of F. 

In terms of the forward 12-month Price/Sales, ALAB is trading at 21.92X, higher than the sector’s 6.59X.

Price/Sales (F12M)

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Conclusion

Astera Labs will continue benefiting from the strong demand for AI-driven infrastructure, its expanding product portfolio, and increasing customer engagement in the rapidly growing connectivity market. Additionally, secular trends in AI and cloud adoption will sustain its growth momentum. These factors justify the company’s premium valuation.

Astera Labs stock currently carries a Zacks Rank #2 (Buy) and has a Growth Score of A, a favorable combination that offers a strong investment opportunity, per the Zacks Proprietary methodology. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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