MW Why Astera Labs' stock strikes bulls as a unique buy despite lofty valuation
By Emily Bary
Astera Labs shares roar higher after rush of bullish initiations
The first big batch of analysts weighed in on Astera Labs Inc. shares before Monday's open, and the verdict was unanimously bullish.
At least nine analysts now cover the artificial-intelligence chip stock, and all of them have buy-equivalent ratings on it. Astera Labs $(ALAB)$ went public in mid-March, and underwriting banks have to wait before initiating coverage of a newly public company. That waiting period has now ended, hence the rush of fresh coverage.
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The average price target listed on FactSet is $85.11, or 17% above Friday's close, which was double the initial-public-offering price. Astera Labs shares are up 7.6% in Monday morning trading.
Needham analyst N. Quinn Bolton views Astera Labs' stock as a "unique investment" since the company is entirely focused on connectivity issues in the cloud and with artificial-intelligence architecture.
"We acknowledge Astera's valuation is rich, but the company is among the fastest growers in the semiconductor industry with industry-leading margins, and we expect estimates to rise, specifically from higher AI server shipments and/or higher retimer attach rates," Bolton wrote in his note to clients.
Astera Labs' Aries retimers recover signals and send clean copies of the data they held, amplifying the reach and increasing data bandwidth.
Bolton set a buy rating and $85 target price on the stock.
Stifel's Tore Svanberg wrote that Astera Labs shares are deserving of "a valuation premium to both peers and the leading [competitor]," even though that valuation looks lofty based on calendar 2025 estimates. They trade at 32.8 times enterprise value to his calendar 2025 sales projections, for example.
"[G]iven how favorably the company compares to even the paragonof strong organic growth + high operating profitability, we believe investors are rightly rewarding [Astera Labs] shares with a premium multiple even to MWPR," or Monolithic Power Systems Inc. (MPWR), he wrote.
Svanberg likes the company's "differentiated" platform of both software and hardware, as well as its status as a "pure play" on AI infrastructure. That makes it "leveraged to some of the most attractive, secularly growing market opportunities in semiconductors over both the near-term (12-24 months) and long-term (3-5+ years)," he added.
He rates the stock a buy with a $81 target price.
J.P. Morgan's Harlan Sur thinks that Astera Labs has a "first-mover advantage" with a "strong competitive moat in high speed circuit design, digital signal processing, [and] system/software."
He expects that the company will be able to grow revenue at a 40% compound annual growth rate over the next few years and to see a 60% compound annual growth rate on earnings per share.
"Over the next 9-12 months, as the team drives strong execution andupside to our/consensus estimates, we expect the stock to approach our price target" of $85, he added. Sur rates the stock at overweight.
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-Emily Bary
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April 15, 2024 10:58 ET (14:58 GMT)
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