/AI%20(artificial%20intelligence)/shutterstock_2330131185.jpg)
Valued at a market cap of $9 billion, Astera Labs (ALAB) went public in March 2024, rising 72% in its trading debut.
Astera Labs is a fabless semiconductor company that offers connectivity solutions for data-centric systems. Its product portfolio includes semiconductor integrated circuits, boards, and services to enable PCIe (peripheral component interconnect express) connectivity. Astera has partnered with processor vendors, cloud service providers, and manufacturing companies, helping enterprises eliminate performance bottlenecks in compute-intensive workloads.
Investors are bullish on Astera Labs, as it is poised to benefit from the artificial intelligence (AI) megatrend. For instance, according to a Jefferies report, Nvidia’s GB200 product is equipped with “retimers” from Astera Labs. Moreover, Astera’s PCIe switch might be a part of future Nvidia products such as the GB200, making it an exciting investment today.
In addition to Nvidia (NVDA), Astera also counts other top chipmakers, such as Advanced Micro Devices (AMD) and Intel (INTC), among its customers.
Currently, Astera Labs stock trades 37% below all-time highs, allowing you to buy the dip.
Let’s see if this semiconductor stock is a good buy right now.
Amazon Owns a Stake in Astera Labs
Founded in 2017, Astera struck a deal with e-commerce giant Amazon (AMZN) two years ago. The tech heavyweight entered into a deal with Astera, making it eligible to purchase up to 1.5 million shares of Astera at $20.34 per share. In 2023, an amended agreement meant Amazon could buy an additional 830,000 shares of Astera. According to SEC filings, Amazon ended 2023 with 232,608 Astera shares, which would be valued at $134.47 million today.
Investors should note that for Amazon to vest its Astera holdings, it would need to purchase roughly $650 million worth of products from the fabless semiconductor entity. Given that Astera ended 2023 with $116 million in total sales, Amazon could be a long-term holder of ALAB stock.
How Did Astera Labs Perform in Q1 of 2024?
In Q1 of 2024, Astera Labs reported revenue of $65.3 million, up 269% year over year. It ended Q1 with an adjusted gross margin of 78.2%, operating income of $15.9 million, and a net income of $14.3 million, or $0.10 per share.
"Astera Labs started the year strong, achieving record revenue in the first quarter, driven by the accelerating deployment of AI infrastructure," said CEO Jitendra Mohan. “As hyperscalers embark on a significant transformation of their data centers to support AI applications with increased capital investment, we're witnessing the emergence of a multi-year growth cycle.”
What's the Target Price for ALAB Stock?
Analysts expect Astera Labs to more than double sales to $304 million in 2024, while adjusted earnings per share are forecast at $0.44. So, priced at 131.8x forward earnings, ALAB stock trades at a premium, given the peer earnings multiple is much lower at 25x.
Out of the 11 analysts tracking ALAB stock, nine recommend “strong buy,” one recommends “moderate buy,” and one recommends “hold.”
The average target price for ALAB stock is $87.91, indicating an upside potential of 58.1% from current levels.
On the date of publication, Aditya Raghunath did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
