When a caller asked about Astera Labs, Inc. (NASDAQ:ALAB) during the October 6 episode of Mad Money, Jim Cramer praised the business but objected to its valuation:
You know, Astera Labs, look, first of all, I’m going to tell you, this is one of those situations I try to explain in my book. It’s a great company, but it is one expensive stock. It was up 27 today. A lot of people like this semiconductor connectivity. That was because of Marvell Tech. Because it went up 27 off of Marvell, I am not going to recommend the stock. It’s at 97 times earnings. Let this one come in.
Astera had already outpaced NVIDIA in an earlier connectivity-stock rally, but AI demand was not the only factor surrounding that move. The September surge offers context for separating enthusiasm about the business from expectations attached to the shares.
Scorpio Adds Another Source of AI Growth
Astera Labs, Inc. reported second-quarter revenue of approximately $392.4 million, up 104% year over year and 27% sequentially. Its Aries product family delivered record quarterly revenue, while management expected Scorpio fabric switches to become its largest product family in the third quarter, one quarter earlier than previously anticipated. These switches help move data between components in AI infrastructure.
The company is also expanding its connectivity portfolio. Its latest Taurus products support faster connections within AI systems, while demonstrations at Computex included optical connectivity and the Scorpio X-Series 320-lane switch. Second-quarter GAAP operating income reached approximately $89.2 million, with a 22.7% operating margin; the adjusted margin was 39.1%. New products are only part of the expansion. Earlier coverage of Astera among AI stocks to hold for five years highlighted a Taiwan initiative aimed at shortening the path from customer testing to deployment.
A High Multiple Leaves Little Room for Disappointment
Astera Labs, Inc. trades at approximately 66.4x forward earnings, compared with 49.3x for Marvell Technology. Its forward sales multiple was approximately 25.3x versus Marvell’s 16x. These provider estimates are separate from the 97x earnings figure Cramer referenced, whose forecast period was not specified in the remarks. Both comparisons show Astera carrying a substantial premium.
Customer concentration adds another consideration. Four direct customers accounted for 29%, 25%, 15% and 13% of second-quarter revenue, respectively. Some are manufacturing partners purchasing on behalf of end customers, so those percentages should not be treated as four separate ultimate buyers. Astera’s filing also identifies dependence on a limited number of end customers and third-party manufacturing partners as risks.
More Funds Bought Into the Story
Insider Monkey’s database recorded 73 hedge fund holders in Q2, up from 53 in Q1. Short interest stood at 6.57% of the float. Whale Rock Capital Management initiated a position with nearly 1.57 million shares and was the most prominent hedge fund holder in Q2. The larger holder count shows broader participation among tracked funds, along with a meaningful short position.
Cramer’s hesitation comes down to the price investors are paying for an otherwise fast-growing business. Scorpio’s expansion gives shareholders something concrete to follow, but the valuation already demands a great deal. His advice was to wait for a better entry rather than chase the rally.
While we acknowledge the risk and potential of ALAB as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than ALAB that has 10,000% upside potential, check out our report about this cheapest AI stock.
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