Key Takeaways:
- The 2-Minute Valuation Model values Astera Labs stock at $136 per share in 2 years.
- That’s a potential 40% upside from today’s price of $97 per share, which would translate to approximately 18% annual returns over the next two years.
- Astera Labs is projected to grow EPS by 185% over the next 3 years as AI connectivity demand explodes.
- ALAB stock is trading at reasonable multiples despite being a recent IPO in the red-hot AI infrastructure space.
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Astera Labs (ALAB) is a leading provider of semiconductor-based connectivity solutions that enable high-speed data movement in AI and cloud infrastructure.
As one of 2024’s most successful IPOs, the company has established itself as a critical player in the AI infrastructure boom, providing the essential “plumbing” that connects processors, memory, and storage in next-generation data centers.
With ALAB stock now trading at $97.54 per share, Astera Labs presents a compelling growth opportunity for investors seeking exposure to the AI infrastructure buildout through a pure-play connectivity specialist.
Let’s examine why this AI infrastructure enabler could deliver substantial returns as data center connectivity requirements accelerate.
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What is the 2-Minute Valuation Model?
Three core factors drive a stock’s long-term value:
- Revenue Growth: How big the business becomes.
- Margins: How much the business earns in profit.
- Multiple: How much investors are willing to pay for a business’s earnings.
Our 2-Minute Valuation Model uses a simple formula to value stocks:
Expected Normalized EPS * Forward P/E ratio = Expected Share Price
Revenue growth and margins drive a company’s long-term normalized earnings-per-share (EPS), and investors can use a stock’s long-term average P/E multiple to get an idea of how the market values a company.
Why ALAB Stock Looks Undervalued
Forecast
Based on analyst estimates shown in the chart below, Astera is expected to achieve explosive earnings growth over the next three years.
EPS is projected to surge from $0.84 in 2024 to $2.39 by 2027, representing a remarkable 185% total increase.
The growth trajectory shows accelerating momentum, with 2025 expected to deliver 61% growth to $1.35, followed by strong 28% growth in 2026 and 39% growth in 2027.
This earnings growth for ALAB stock is likely to be driven by:
- AI infrastructure explosion: Every AI data center requires high-performance connectivity solutions, Astera’s core specialty
- Market leadership position: The company’s PCIe retimers and CXL controllers are becoming industry standards
- Customer adoption acceleration: Hyperscale cloud providers are rapidly deploying Astera’s solutions at scale
- Operating leverage: As a semiconductor company, Astera benefits from significant operating leverage as revenues scale
For our valuation, we’ll estimate that Astera Labs stock will reach $2.25 in EPS in 2027.
See Astera’s full analyst estimates (It’s free) >>>
Valuation Multiple
Today, as shown in the valuation chart, Astera stock trades at around 71x forward earnings, below its 12-month historical average P/E of 102x.
For our valuation, we’ll use a conservative forward P/E multiple of 60x. This is well below the company’s historical average and current multiple, and is reasonable as the company is expected to grow revenue and earnings around 30% annually.
Fair Value of ALAB Stock
Using our 2-Minute Valuation Model and applying a conservative approach:
- Conservative 2027 EPS estimate: $2.25
- Conservative forward P/E multiple: 60x
Expected Normalized EPS ($60) * Forward P/E ratio (2.25x) = Expected Share Price ($136)
The 2-year expected ALAB stock price we would get from this valuation is $136 per share.
With Astera stock currently trading at around $96 per share, this implies a potential upside of 40% over the next two years or an 18% annualized return.
An 18% annual return would be nice for investors, considering the S&P 500 index has delivered approximately 10% annual returns over the last six decades.
Remember, this is just a valuation exercise, and we don’t know for sure what the stock’s price will be in the future.
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What is the Average Analyst Price Target for Astera Stock?
Analysts think Astera stock is undervalued, with an average price target of $102. That implies approximately 4% upside from its current trading price. However, the high ALAB stock price target is $136, which aligns with our estimates.
Risks to Consider
Despite the bullish outlook, investors should be aware of several risks that could impact the chip maker’s growth trajectory:
- Valuation sensitivity: High-growth stocks can be volatile and sensitive to changes in growth expectations.
- Competition risk: Larger semiconductor companies like Broadcom and Marvell could enter Astera’s markets.
- Customer concentration: Heavy reliance on hyperscale cloud providers creates vulnerability to customer shifts.
- Market maturation: As the AI connectivity market matures, growth rates and margins could compress.
TIKR Takeaway
Astera Labs presents a compelling pure-play opportunity in AI infrastructure connectivity at a reasonable valuation given its growth profile.
ALAB stock’s upside potential is driven by its leadership position in critical AI data center components and the massive infrastructure investment cycle underway.
While ALAB stock trades at premium multiples typical of high-growth semiconductor companies, the company’s technical moat, customer relationships with leading cloud providers, and position in the fastest-growing segment of the semiconductor market support the valuation.
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Disclaimer:
Please note that the articles on TIKR are not intended to serve as investment or financial advice from TIKR or our content team, nor are they recommendations to buy or sell any stocks. We create our content based on TIKR Terminal’s investment data and analysts’ estimates. Our analysis might not include recent company news or important updates. TIKR has no position in any stocks mentioned. Thank you for reading, and happy investing!
