Astera Labs Stock Drops As High Growth Expectations Outweigh Blowout Quarterly Report

Shares in Astera Labs (ALAB) dropped nearly 7% in premarket trading Wednesday morning even though the maker of artificial intelligence (AI) chip connectivity products surpassed Wall Street’s quarterly estimates and issued an upbeat outlook.

The steep decline indicated that investors may have had even higher expectations given the stock’s impressive gains and positive coverage from analysts since going public on March 20.

The Santa Clara, California-based company, which has which has seen its shares more than double from their $36 initial public offering (IPO) price, reported March quarter adjusted earnings of 10 cents per share, significantly above the 4 cent-a-share figure expected by analysts. Revenue in the period more than tripled from a year earlier to $65.3 million and sailed past forecasts of $56.7 million.

AI Infrastructure Fuels Demand for Chip Connectivity Products

Looking at the current quarter, the company projects sequential net sales growth of 10% to 12%, representing a midpoint figure of $72.5 million, well above analysts’ estimates of $62.8 million.

The company, which develops connectivity products required to build and scale AI in the cloud, stands to benefit from increasing enterprise spend on the technology’s infrastructure requirements.

“As hyperscalers embark on a significant transformation of their data centers to support AI applications with increased capital investment, we’re witnessing the emergence of a multiyear growth cycle,” CEO Jitendra Mohan said in the company’s earnings release.

Monitor This Level Amid Earnings-Related Selling

Last month, all nine analysts surveyed by FactSet had a “buy” rating on the stock with an average 12-month price target of $85.11, just 11.7% above Tuesday’s close of $76.19, helping to establish high top-line expectations.

Taking a look at the four-hour chart, Astera Labs shares jumped out of the gate following their Nasdaq listing debut, climbing as high as $95.21 in their first five days of trading. However, since that time, the price has consolidated within a range of roughly 28 points between $60 and $88 leading into the company’s first earnings report. 

Although the stock is poised to open sharply lower on Wednesday following the quarterly results, investors should watch if buyers can defend the key $74.50 level in coming days, an area where the shares find support from a multi-week horizontal line that sits in close proximity to the 50-period moving average.

Astera shares were down 6.7% at $71.10 in premarket trading around 7:00 a.m. ET.

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As of the date this article was written, the author does not own any of the above securities.