Can Astera Labs Stock Reach $100 Per Share?
Shares of Astera Labs (ALAB) have been on an absolute tear since its initial public offering (IPO) in March 2024. Astera Labs priced its IPO at $36 per share, and the stock currently trades at $85, valuing the company at a market cap of $12.9 billion.
Let’s see if Astera Labs stock can surge higher from current levels to touch $100 per share in 2024.
Amazon Owns a Stake in Astera Labs
Astera Labs sells data center connectivity chips to several cloud and artificial intelligence (AI) companies. Founded in 2017, Astera's customers include chip manufacturing giants such as Nvidia (NVDA), Advanced Micro Devices (AMD), and Intel (INTC).
Back in 2022, Astera Labs inked a deal with Amazon (AMZN), allowing the e-commerce behemoth to purchase 1.5 million shares of Astera stock at $20.34 per share. Last year, the deal was amended to provide Amazon with a warrant to buy an additional 830,000 shares of Astera. According to its SEC filing, at the end of 2023, Amazon owned 232,608 shares. A CNBC report suggests Amazon’s total shares and warrants are worth over $140 million at current prices.
However, for Amazon to vest its shares and benefit from the uptick in Astera Labs stock, it would need to purchase up to $650 million worth of products in the next few years. This is a significant number, given that Astera Labs reported sales of $116 million in 2023 and $80 million in 2022.
Astera’s IPO prospectus states Amazon has agreed to buy three types of products to address bottlenecks in AI infrastructure.
Evercore ISI Is Bullish on Astera Labs Stock
Earlier this month, investment bank Evercore ISI initiated coverage on Astera Labs, assigning an “Outperform” rating and a price target of $100.
Evercore is bullish on Astera due to its strong growth trajectory, as the company is forecast to increase sales by 40% annually in the next five years. Moreover, Astera accounts for 90% of the data center retimer market, an essential component used to build AI servers.
Analysts tracking the stock expect Astera to more than double sales to $270 million in 2024, and increase its top line by another 52% to $411 million in 2025. Unlike many other growth stocks, Astera Labs is profitable, and is on track to end 2025 with adjusted earnings of $0.51 per share, up from $0.26 per share in 2024.
However, priced at 48x forward sales and 327x forward earnings, Astera Labs trades at a lofty multiple.
What's the Target Price for Astera Labs Stock?
The mean target price for Astera Labs is $86.09, marginally higher than the current trading price. Evercore's Street-high target of $100 represents a premium of more than 16% to Monday's close.
Out of the 11 analysts covering Astera Labs stock, nine recommend “strong buy,” one recommends “moderate buy,” and one recommends “hold.”
The Bottom Line on ALAB Stock
Astera Labs is part of a robust ecosystem and is a supplier to some of the largest semiconductor chip manufacturers in the world. Further, Astera Labs is uniquely positioned to benefit from various secular tailwinds surrounding the AI space, given its offerings in parallel processing.
On the other hand, investors should be worried about the steep valuation multiples for Astera Labs, as growth stocks trail the broader markets significantly when sentiment turns bearish.
On the date of publication, Aditya Raghunath did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
Provided Content: Content provided by Barchart. The Globe and Mail was not involved, and material was not reviewed prior to publication.
