Astera Labs (ALAB) addresses a multi-billion-dollar market opportunity in scaling AI through its retimer and switching chips for Peripheral Component Interconnect Express and Ethernet-based protocol products, Bank of America Securities said in a Friday research note.
Astera has no competition in PCIe AI scale-up and is poised to benefit from a scale-up switch opportunity via its 'Scorpio-X' product, tied to Amazon (AMZN) Web Services' rack-scale deployments in 2026-27 and shipping of its UALink-based switch products, linked to Advanced Micro Devices (AMD) GPUs in 2027-28.
BofA expects sales growth of 37% and EPS growth of 34% from CY 2025 through 2027, given the expansion of the AI connectivity total addressable market. However, gross margins are likely to contract moving forward on mix shift toward more hardware and competition, according to the note.
Astera's steady upward sales revision is a key driver of its premium valuation. However, there is scope for future deceleration in growth due to growing competition from Nvidia's (NVDA) "NVLink" and Broadcom's (AVGO) "Scale-Up Ethernet" based switches, which could make it difficult for Astera to expand its premium, analysts wrote.
Intel (INTC) plans to embrace the NVLink ecosystem and unify its x86 CPUs into Nvidia racks, while Nvidia CEO has stated that PCIe retimers will not be necessary, which poses a "major headwind" to Astera, according to BofA.
The brokerage said it initiated coverage of the stock with a neutral rating and a price target of $230 per share.
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