Astera Labs Downgraded to Market Perform Amid Valuation Concerns
Northland analysts downgraded Astera Labs (NASDAQ:ALAB) from Outperform to Market Perform, setting a price target of $120, citing concerns over valuation and the likelihood of profit-taking by investors as the New Year begins.
Astera Labs is currently trading at 44 times the consensus non-GAAP earnings per share (EPS) estimate for 2028, which stands at $2.99. While the dynamic growth of the AI market and increased spending on connectivity may drive these estimates higher, sustaining such growth levels in the long term could be challenging. Consensus projections already anticipate a compound annual growth rate (CAGR) of 39% for revenue and 42% for non-GAAP EPS over the next four years.
Assuming more optimistic growth scenarios—with revenue growth at 51% and EPS growth at 53%—the 2028 non-GAAP EPS could reach $4.00 on $1.98 billion in revenue. However, maintaining revenue growth above 50% over an extended period, even in the booming AI semiconductor space, is historically rare. By comparison, NVIDIA’s growth from 2020 to 2024—a period spanning the pandemic and the early AI surge—achieved a CAGR of 67%. Such explosive growth is unlikely to continue for Astera Labs as cloud service providers moderate their AI-related spending by 2028.
Astera Labs had a strong 2024, and its IPO in May at $36 per share has since seen shares climb to $133.45 by the end of the year. Given the significant run-up, the analysts expect many investors to lock in gains, further supporting the downgrade.
| Symbol | Price | %chg |
|---|---|---|
| AMD.BA | 14650 | -0.51 |
| TXN.BA | 43675 | 1.37 |
| 000660.KS | 205000 | 5.02 |
| LRCX.BA | 1605 | 1.25 |
Astera Labs, Inc. (NASDAQ:ALAB) Reports Significant Q2 Financial Achievements
- Revenue surge to $76.9 million, marking an 18% sequential growth and a 619% growth year-over-year.
- Gross profit reached $59.85 million with a GAAP gross margin of 77.9%, despite a GAAP operating loss of $24.3 million.
- Projected Q3 fiscal 2024 GAAP revenue between $95 million to $100 million, with a GAAP gross margin of approximately 75%.
Astera Labs, Inc. (NASDAQ:ALAB), a pioneer in semiconductor-based connectivity solutions for cloud and AI infrastructure, has recently shared its financial achievements for the second quarter of fiscal year 2024, which concluded on June 30, 2024. The company's announcement of a revenue surge to $76.9 million is noteworthy, showcasing an 18% sequential growth and an impressive 619% growth year-over-year. This significant increase in revenue underscores Astera Labs' expanding influence in the semiconductor industry, particularly within the realms of AI and cloud infrastructure.
The company's financial health is further detailed by its gross profit of $59.85 million for the quarter, against a cost of revenue totaling $16.99 million. This resulted in a GAAP gross margin of 77.9%, highlighting the company's efficiency in managing its production costs and maintaining profitability on its products. Despite these strong gross margins, Astera Labs reported a GAAP operating loss of $24.3 million and a GAAP net loss of $7.5 million, which translates to a GAAP diluted net loss per share of $0.05. These figures indicate the company's current operational expenses outweigh its gross profits, a common scenario for growing companies investing heavily in expansion and development.
Astera Labs' CEO, Jitendra Mohan, attributed the robust top-line growth to the production ramp of new AI platforms at hyperscalers, emphasizing the sustained secular trends in AI adoption and the company's increasing average dollar content in next-generation GPU-based AI platforms. This strategic focus on AI and collaboration with hyperscalers and AI platform providers is pivotal for unlocking new product and business opportunities, as evidenced by the company's introduction of the industry's first end-to-end PCIe optical connectivity link and the expansion of PCIe 6.x testing capabilities.
Looking ahead, Astera Labs provided a financial outlook for the third quarter of fiscal 2024, projecting GAAP revenue to be within the range of $95 million to $100 million, with a GAAP gross margin of approximately 75%. This forecast suggests a continued upward trajectory in revenue, albeit with a slight decrease in gross margin percentage. The anticipated GAAP operating expenses of approximately $92 million to $93 million reflect the company's ongoing investments in expansion and innovation, including the establishment of a new R&D site in Bangalore, India.
Astera Labs' strategic initiatives and financial performance, particularly its significant revenue growth and expansion into new markets, position the company for continued success in the semiconductor industry. The focus on AI and cloud infrastructure, coupled with strategic collaborations and global expansion, underscores Astera Labs' commitment to innovation and its strong potential for future growth.
Barclays is Bullish on Astera Labs
Barclays analysts started coverage on Astera Labs (NASDAQ:ALAB) with an Overweight rating and, setting a price target of $85 on the stock. The analysts highlighted that Astera Labs is well-positioned as an early leader in a variety of data center connectivity products, which are crucial for the evolving AI and cloud computing sectors. The company's offerings focus on enabling high-speed data transfers and expanding system bandwidth within data centers, supporting multiple protocols such as PCIe, CXL, and Ethernet.
With the surge in AI investments and the need for higher bandwidth driving the adoption of next-generation platforms, Astera’s innovations in interconnect technology are becoming increasingly vital. The company’s growth is further supported by its integrated software solutions, strong ties with major hyperscalers, and a leading operational approach.
