Key Points
Astera Labs serves an important segment of the artificial intelligence hardware market, as well as one of the industry’s biggest players.
On Monday, this customer inked a deal that could dramatically grow its revenue for at least a couple more years, adding to already-enormous growth.
Interested investors should just bear in mind that extreme volatility remains likely with this ticker, regardless of potential bottom-line growth.
Shares of data center networking solutions provider Astera Labs(NASDAQ: ALAB) are up big-time today. Indeed, as of 1:33 p.m. ET Tuesday the stock's up an impressive 7.8%.
Just don't look for news directly from or about the company for an explanation. You won't find it. Rather, look to yesterday evening's reporting regarding the expanded partnership between e-commerce and cloud computing powerhouse Amazon(NASDAQ: AMZN) and artificial intelligence platform provider Anthropic. It indirectly benefits Astera Labs, but in a big way.
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Astera Labs is a key technology supplier to Amazon
They were already partners. Now this relationship's been further deepened.
On Monday, artificial intelligence outfit Anthropic committed to spending over $100 billion over the course of the coming ten years to access up to 5 gigawatts' worth of Amazon's self-developed Trainium processor chips, which will be used to develop Anthropic's next-generation artificial intelligence models. As part of the agreement, Amazon is investing $5 billion in Anthropic, with the option of investing an additional $20 billion in the privately owned AI platform in the future.
It's just another deal in a long string of them that the artificial intelligence industry has seen since 2023, shortly after the launch of ChatGPT in late 2022. What does this one have to do with Astera Labs?
Astera is a key supplier of technology that interconnects Amazon's Trainium processors within its AI data centers. That's why J.P. Morgan analyst Harlan Sur reportedly expects Amazon to use Astera Labs' P-series switches and its PCIe retimer technology to support Trainium 2 chips, while expecting its Trainium 3 silicon to utilize Astera's higher-performing Scorpio-X fabric switches in deployments later this year.
Image source: Getty Images.
Sur isn't the only analyst connecting these dots either. RBC Capital's Srini Pajjuri upped his price target on ALAB stock from $225 to $250 on Tuesday, explaining "We are modeling overall Scorpio switch revenue to increase from $130m in 2025 to $390m in 2026 and see room for upside as we believe Scorpio-X adds a few hundred dollars of incremental opportunity per XPU."
Tricky to trade
It's clearly good news. Just proceed with caution if you're thinking about diving in. Astera Labs stock has a history of incredible volatility, and is still priced at more than 50 times next year's consensus per-share earnings of $3.53. Even if the deal between Amazon and Anthropic inflates 2027's likely bottom line, this ticker's valuation remains uncomfortably rich. As such, ALAB remains a speculative prospect, particularly now that it's back at a high hit several times since late last year.
Should you buy stock in Astera Labs right now?
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JPMorgan Chase is an advertising partner of Motley Fool Money. James Brumley has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon and JPMorgan Chase. The Motley Fool recommends Astera Labs. The Motley Fool has a disclosure policy.
