Astera Labs (ALAB) Delivers
We’re going to stick with our hold half rating for Astera Labs (ALAB) following the company’s better-than-expected Q4 2024 report yesterday. Revenue grew 180% to $141 million and beat by 10% while EPS of $0.37 grew 208% and beat by 43%.
The company continues to see accelerating orders from a growing customer base that includes Google (GOOG), Amazon (AMZN), NVIDIA (NVDA), Microsoft (MSFT), Meta (META), AMD (AMD) and more. In addition to higher PCIe retimer chipset demand (the product category that put Astera on the map and where it has over 80% market share), Astera is also seeing higher demand for other connectivity solutions (Taurus, Leo, Scorpio product lines). Revenue guidance (+135%) for the next quarter is above expectations. Many analysts are increasing price targets.
The obvious question is: if everything sounds so good why is ALAB stock selling off today? There was some discussion about gross margin “pressure” as the current GM moved from around 74% (above management’s long-term model) toward 70%, partially due to product mix. Also, the company’s super-normal growth phase is fading. And roughly 70% expected revenue growth in 2025 is still phenomenal, even if it’s not the 200%+ pace of growth from 2024. Some shifting of expectations is likely being telegraphed through the stock as the company matures a little.
Given all the momentum in the business I think ALAB stock will be fine and do well in the quarters ahead so I expect to stick with it. I’m just not ready to double down today. I want to see how the next couple of days go. HOLD HALF
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