Astera Labs Drops 33% Year to Date: Buy, Sell or Hold the Stock?
Stiff competition, along with uncertainty over tariffs, has negatively impacted ALAB's YTD performance. Astera Labs is facing stiff competition from both Broadcom and Credo Technology. Broadcom's launch of PCIe Gen 6 portfolio, featuring high-port switches and retimers tested for interoperability with partners like Micron and Teledyne LeCroy, is a noteworthy development. Credo Technology continues to gain share in the optical segment, with a major DSP win for an 800G transceiver and the launch of ultra-low-power optical DSPs based on 5nm technology. It also reported a healthy pipeline of PCIe Gen6 AECs and retimers, with further customer wins expected to support fiscal 2026 growth.
However, Astera Labs' expanding portfolio is expected to help the stock recover in the remainder of 2025.
ALAB Stock's Performance
Strong Portfolio to Boost ALAB's Prospects
Astera Labs has emerged as a key player in next-gen data center connectivity with a full-stack portfolio spanning PCIe 6.0, Ultra Accelerator (UA) Link, and CXL 3.0. Apart from shipping PCIe Gen 6 Scorpio P-Series Smart Fabric Switches, Aries 6 PCIe/CXL Smart Retimers, and Aries 6 PCIe Smart Cable Modules, the company added Aries 6 PCIe Smart Gearboxes.
Astera Labs is benefiting from strong demand for Aries and Taurus product families, both expected to grow on a sequential basis in the second quarter of 2025. The addition of PCIe 6 over Optics Technology is noteworthy. Diversification across both GPU and custom ASIC-based systems for a variety of applications, including scale-up and scale-out connectivity, is a key catalyst for ALAB's Aries product family. Continued deployment of AI and general-purpose systems at leading hyperscaler customers is benefiting the Taurus system.
Astera Labs plans to provide a broad portfolio of connectivity solutions for the entire AI rack through purpose-built silicon hardware and software to support computing platforms based on both custom ASICs and merchant GPUs is a key catalyst. The company plans to increase its research and development (R&D) investments to achieve these plans. In first-quarter 2025, R&D jumped 20% year over year to $64.6 million. Operating expense is expected to be between $73 million and $75 million in the second quarter of 2025, driven by higher R&D expenses.
UA Link offers a significant growth opportunity for Astera Labs. UA Link combines the memory semantics of PCIe and the fast speed of Ethernet, but is devoid of the software complexity and performance limitations of Ethernet. ALAB expects to deliver UA Link solutions in 2026 to solve scale-up connectivity challenges for next-generation AI infrastructure. The growing proliferation of UA Link is expected to be a multibillion-dollar additional market opportunity for Astera Labs by 2029.
Expanding Partner Base Bodes Well for ALAB
Astera Labs is benefiting from a rich partner base. ALAB is advancing next-gen data center infrastructure with the introduction of a PCIe 6-ready reference design based on NVIDIA NVDA Blackwell-based MGX platform that leverages Scorpio Smart Fabric Switches for AI and cloud infrastructure. Scorpio-based solutions enable users to maximize GPU productivity through enhanced data center observability, telemetry, and diagnostics using ALAB's COSMOS rack-scale management software.
Astera Labs has showcased the first end-to-end PCIe 6 interoperability with NVIDIA's Blackwell GPU and Micron's NVMe SSD, with both Aries 6 PCIe Smart Retimer and Scorpio-P PCIe SmartFabric Switch. Collaboration with ecosystem leaders like Wistron expands Astera Lab's reach into OEM and modular platforms.
ALAB Offers Positive Q2 Guidance
Astera Labs expects second-quarter 2025 revenues between $170 million and $175 million, suggesting an increase between 7% and 10% year over year. The company expects accelerated shipments of Scorpio P-Series switches and Aries 6 retimers on a customized rack-scale AI platform based on market-leading GPUs to boost top-line growth. Scorpio revenues are expected to grow sequentially in the second quarter and should account for 10% of total revenues in 2025.
The Zacks Consensus Estimate for second-quarter 2025 revenues is pegged at $172.71 million, indicating 124.74% year-over-year growth.
Earnings are expected between 32 cents and 33 cents per share for the second quarter. The consensus mark for earnings is pegged at 33 cents per share, unchanged over the past 30 days, indicating 153.85% year-over-year growth.
The Zacks Consensus Estimate for 2025 revenues stands at $702.43 million, suggesting 77.25% growth over 2024's reported figure. The consensus mark for earnings is pegged at $1.35 per share, unchanged over the past 30 days, but indicates 60.71% year-over-year growth.
ALAB Shares Trading at a Premium
Astera Labs stock is trading at a premium, as suggested by the Value Score of F.
In terms of the forward 12-month Price/Sales, ALAB is trading at 19.49X, higher than the sector's 6.59X, Broadcom's 18.03X but lower than Credo Technology's 19.95X.
Price/Sales Ratio (F12M)
Conclusion
Although Astera Labs' innovative portfolio is noteworthy, its prospects suffer from tariff uncertainty and stiff competition, along with a stretched valuation.
Astera Labs currently carries a Zacks Rank #3 (Hold), which implies that investors should wait for a more favorable point to accumulate the stock. You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.
5 Stocks Set to Double
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Stock #1: A Disruptive Force with Notable Growth and Resilience
Stock #2: Bullish Signs Signaling to Buy the Dip
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NVIDIA Corporation (NVDA): Free Stock Analysis Report
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