Astera Labs Faces Stock Drop After Q4 2024 Report, Despite Revenue Growth

Astera Labs ALAB shares have fallen 36.2% following the release of its fourth-quarter 2024 results on Monday. Investors expressed worries over the company’s gross margin, which came in at 74.1%, below expectations. This decline is linked to a shift towards lower-margin hardware products like the Aries and Taurus Smart Cable Modules.

Strong Revenue Growth Amid Challenges

Despite the margin concerns, Astera Labs achieved record revenues of $141 million for the quarter, marking a 25% increase from the previous quarter and a remarkable 179% year-over-year growth. The surge in revenue is credited to robust demand for its Aries PCIe Retimer and Taurus Ethernet Smart Cable Module, driven largely by the needs of AI connectivity.

ALAB Outshines Competitors

Over the past six months, ALAB shares have soared 94.6%, significantly outperforming the broader Zacks Computer & Technology sector, which returned 10.3%, and the Zacks Electronics – Semiconductors industry, which rose 25.3%.

This strong performance can be attributed to high demand for the Aries and Taurus products, which helped maintain growth despite the challenges posed by lower-margin transitions.

Capitalizing on AI Developments

Astera Labs’ growth trajectory is closely tied to the increasing demand for AI platforms, especially in relation to high-performance GPUs and AI accelerators. This trend has translated into notable design wins and sales increases for products like the Aries Retimers and Taurus Cable Modules.

In Q4 2024, ALAB launched its Scorpio Smart Fabric Switches, designed specifically for AI infrastructure in cloud environments. The P-Series ensures powerful GPU-to-CPU connectivity, while the X-Series supports back-end AI clustering needs. These switches are currently being shipped in pre-production quantities.

The Aries product line continues to offer substantial growth potential, as increasing demand for advanced connectivity solutions positions Aries Retimers as essential tools for enhancing AI system performance. 

Strong Partnerships Fuel AI Innovations

Astera Labs has formed valuable partnerships with major chipmakers like NVIDIA NVDA, Advanced Micro Devices AMD, Micron Technology, and Intel, which amplify its influence in the AI market.

NVIDIA integrates Astera Labs products into its GB200 series, anticipating these partnerships will drive future advancements in AI technology. AMD also uses Astera Labs solutions to improve the performance and scalability of its AI-centric products, reinforcing both companies’ competitive positions.

Positive Outlook for Q1 2025

Looking ahead, ALAB expects continued strong demand for its product lines, which should support its revenue growth. For the first quarter of 2025, the company anticipates revenues between $151 million and $155 million, with non-GAAP earnings projected to be between 28 and 29 cents per share.

Earnings Estimates on the Rise

The Zacks Consensus Estimate for Q1 2025 revenues sits at $153.76 million, representing a 135.6% increase year-over-year. The estimate for earnings stands at 27 cents per share, reflecting a 170% year-over-year rise and has seen a slight upward revision in the past month.

Astera Labs, Inc. Price and Consensus

For the latest EPS estimates and surprises, visit Zacks Earnings Calendar.

Concerns about Overvaluation

Currently, ALAB shares are considered overvalued, indicated by a Value Score of F. The stock is trading at a forward 12-month Price/Sales ratio of 21.92, which exceeds the sector average of 6.59.

Price/Sales (F12M)

Image Source: Zacks Investment Research

Summary

Astera Labs is well-positioned to benefit from the growing demand for AI-oriented infrastructure and its diverse product offerings. The momentum from trends in AI and cloud adoption is expected to bolster its growth. These factors contribute to the company’s premium valuation.

Astera Labs currently holds a Zacks Rank #2 (Buy) with a Growth Score of A, signifying a strong investment opportunity according to Zacks’ methodology. To learn more, see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Discover Top Stock Picks for the Upcoming Month

Experts have recently identified 7 elite stocks from the larger group of 220 Zacks Rank #1 Strong Buys that they believe have high potential for early price increases.

Since 1988, this carefully curated list has outperformed the market by over two times, with an average annual return of +24.3%. It’s worth a look for investors seeking promising opportunities.

Want more of Zacks Investment Research’s latest recommendations? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report.

Advanced Micro Devices, Inc. (AMD): Free Stock Analysis Report

NVIDIA Corporation (NVDA): Free Stock Analysis Report

Broadcom Inc. (AVGO): Free Stock Analysis Report

Astera Labs, Inc. (ALAB): Free Stock Analysis Report

To read this article on Zacks.com, click here.

Zacks Investment Research

The views and opinions expressed herein are those of the author and do not necessarily reflect those of Nasdaq, Inc.