Should You Buy, Sell or Hold Astera Labs Stock at P/S of 15.59X?

Astera Lab ALAB shares are currently overvalued, as suggested by its Value Score of F. 

In terms of the forward 12-month Price/Sales, ALAB is trading at 15.59X, higher than the industry’s 7.09X.

Price/Sales (F12M)

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ALAB is also expensive compared to its industry peers, including Broadcom AVGO, Credo Technology and Nova, which currently trade at forward 12-month Price/Sales of 13.66X,12.25X and 6.85X, respectively.

ALAB shares have also plunged  48.3% in the year-to-date period, underperforming the broader Zacks Computer & Technology sector’s decline of 9.1% and the Zacks Electronics - Semiconductors industry’s decrease of 13.5%. The decline is attributed to concerns over the lower-than-expected gross margin driven by a shift in product mix toward hardware-based solutions.

ALAB Underperforms Sector, Industry

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However, strong demand for its Aries PCIe Retimer and Taurus Ethernet Smart Cable Module products, which saw high demand for AI scale-up and scale-out connectivity, has been noteworthy.

Hence, investors should ask this question: can ALAB sustain its growth despite concerns over its valuation and gross margin pressures?

ALAB Unveils Scorpio Smart Fabric for NVIDIA MGX Platforms

ALAB’s increasing demand for AI platforms, particularly those leveraging high-performance GPUs and AI accelerators, drove strong design wins and sales for products like Aries Retimers, Taurus Smart Cable Modules, and Scorpio Fabric Switches.

Building on this momentum, ALAB recently introduced its Scorpio Smart Fabric Switches for PCIe 6-ready NVIDIA NVDA Blackwell-based MGX platforms, delivering high-performance, modular scalability for AI and cloud infrastructure.

With comprehensive design-in collateral and interoperability validation in its Cloud-Scale Interop Lab, ALAB enhances NVIDIA MGX platform integration by optimizing GPU utilization, improving energy efficiency, and enabling advanced rack-level management through its COSMOS software.

Astera Labs Powers AI Advancements With Top Chipmakers

Astera Labs has made a significant impact on the AI industry with collaborations with top chipmakers, including NVIDIA, Advanced Micro Devices AMD, Micron Technology, and Intel.

Astera Labs products are used in NVIDIA’s GB200 product. The PCIe switch is expected to play a key role in future NVIDIA products. This collaboration further emphasizes Astera Labs’ influence in the development of advanced AI technologies.

AMD also continues to utilize Astera Labs solutions to enhance the efficiency and scalability of its AI-driven products. The partnership strengthens both companies’ positions in the AI market, fueling advancements in next-gen technologies.

ALAB Initiates Strong 1Q25 Guidance

ALAB’s continued demand for its AI-related products and an expanding customer base are expected to drive top-line growth. 

The company continues to expect strong growth from the Aries product family across diverse AI platforms, ramping Taurus SCM for 400-gig applications and additional preproduction shipments of Scorpio P-Series switches.

For the first quarter of 2025, ALAB expects revenues between $151 million and $155 million.

Non-GAAP earnings are expected to be between 28 and 29 cents per share.

ALAB’s Earnings Estimates Show Upward Movement

The Zacks Consensus Estimate for first-quarter 2025 revenues is pegged at $153.34 million, indicating a year-over-year increase of 134.97%.

The Zacks Consensus Estimate for first-quarter 2025 earnings is pegged at 28 cents per share, which has remained unchanged in the past 30 days. The figure calls for a year-over-year increase of 180%.

Find the latest EPS estimates and surprises on Zacks Earnings Calendar.

ALAB Faces Pressure as AVGO Expands PCIe Gen 6 Portfolio

Despite expanding its portfolio, ALAB is facing stiff competition from other industry players like Broadcom, which is also making strong efforts in the PCIe retimers market.

In February 2025, Broadcom announced the availability of its end-to-end PCIe Gen 6 portfolio, reinforcing its leadership in PCIe technology. This move further intensifies the competition as Broadcom solidifies its position as a dominant force in the industry.

The company introduced its PCIe Gen 6 Interop Development Platform to simplify system design with advanced telemetry and diagnostics. Collaborating with Micron and Teledyne LeCroy, Broadcom successfully validated interoperability for PCIe Gen 6 switches, retimers, and NVMe SSDs, ensuring seamless integration into next-generation AI infrastructure solutions.

What Should Investors Do With ALAB Stock?

Despite a strong product portfolio, ALAB faces increasing competition in the AI and cloud markets, particularly from larger semiconductor companies that are ramping up their product offerings for AI infrastructure. This competition is expected to hurt the company’s financial performance. Stretched valuation also remains a concern.

Astera Labs currently has a Zacks Rank #3 (Hold), suggesting that it may be wise to wait for a more favorable entry point to accumulate the stock. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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

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