Astera Labs Pops Ahead of Earnings: Here's What to Know

Shares of Astera Labs have been on one heck of a rollercoaster since their IPO last year.

After Astera bottomed out in April along with the general market, shares began to form a constructive base, followed by a breakout and a prolonged period of relative strength. The stock rallied more than 350% over the following 5 months, in part due to its ties to the artificial intelligence theme.

It’s no secret that tech stocks have led the charge this year as this bull market enters its next phase. The broader technology sector is providing a durable backing for this industry leader. Semiconductor stocks and related companies remain at the heart of the AI movement.

Astera’s Role in the AI Value Chain

Astera Labs, a Zacks Rank #1 (Strong Buy), has been a major beneficiary. The company designs and manufactures semiconductor-based connectivity solutions for cloud and AI infrastructure. Astera offers an intelligent connectivity platform and high-speed connectivity integrated circuits as well as modules, boards, and other related products used in data centers.

The growing system complexities and speed requirements of AI and cloud infrastructure bode well for Astera Labs. Swelling accelerator cluster sizes, quicker interconnect requirements, and overall system challenges are driving demand for the company’s solutions. Astera has emerged as a critical player in next-generation data center connectivity.

Still, Astera faces major competition from the likes of AMD, Credo Technology, Intel, and Broadcom. Shares dropped last month after AMD revealed an expanded cloud partnership with Oracle to deploy 50,000 GPUs next year. The move was seen as potentially reducing the need for Astera’s PCIe interface products.

But perhaps the downturn was overblown as Astera scales out its product offering. The company 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, which is a key catalyst.

Astera Set to Deliver Third-Quarter Earnings

Astera ALAB is part of the Zacks Internet – Software industry group, which currently ranks in the top 32% out of approximately 250 industries. Because this group is ranked in the top half of all Zacks Ranked Industries, we expect it to outperform the market over the next 3 to 6 months.

Stocks in this industry are projected to experience above-average earnings growth, which signifies a powerful tailwind that should lead to higher prices in the future.

Historical research studies suggest that approximately half of a stock’s price appreciation is due to its industry grouping. In fact, the top 50% of Zacks Ranked Industries outperforms the bottom 50% by a factor of more than 2 to 1.

Astera has exceeded the earnings mark in each quarter since last year’s IPO.  The company delivered a trailing four-quarter average earnings surprise of 32.2%. Consistently beating earnings estimates is a recipe for success.

For the latest quarter, the California-based company is expected to earn an adjusted 39 cents per share on sales of $206.73 million. The figures represent year-over-year improvements of 69.6% and 82.8%, respectively. Estimates have remained steady over the past 60 says. Astera is set to report its Q3 results after the close on Tuesday.

Chief Executive Jitendra Mohan remains upbeat on future growth. “Astera Labs is at the forefront of the AI infrastructure transformation, and we are accelerating our investments to realize our vision of rack-scale connectivity in next-generation AI systems.”

Bottom Line

Backed by a leading industry group and history of earnings beats, it’s not difficult to see why ALAB stock is a compelling investment. If you haven’t already done so, be sure to put ALAB on your watchlist.

Disclosure: ALAB is a current holding in the Zacks Headline Trader portfolio.

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

This article originally published on Zacks Investment Research (zacks.com).

Zacks Investment Research