Why Astera Labs Stock Was on Fire This Week

A professional pundit got notably more bullish on Astera Labs (NASDAQ: ALAB) on Monday, and that set quite a positive tone for the semiconductor company's stock in the subsequent trading days. According to data compiled by S&P Global Market Intelligence, the shares were trading up by almost 30% week to date as of early Friday morning.

Once a hold, now a buy

That pundit was analyst Joseph Moore of white-shoe investment bank Morgan Stanley. He upgraded his recommendation on Astera's stock to overweight (i.e., buy) from his preceding equal weight (hold). His price target is now $99 per share.

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According to reports, Moore's new take on Astera was based on the increased demand for hyperscale data centers -- which can handle the increased computing resource needs of artificial intelligence (AI) functionalities -- and the likely increase in production of Nvidia's MGX graphics processing unit (GPU) architecture. Astera supplies switching technology for these products.

The investment bank's analysts also believe that Astera will benefit from rising demand in another cutting-edge product category, application-specific integrated circuits (ASICs).

Guiding for disappointment

That upgrade feels justified, as Astera saw its share price weaken slightly after publishing its first-quarter earnings report last week. Although the company delivered triple-digit revenue growth and increased its non-GAAP (adjusted) net earnings more than fourfold, its second-quarter guidance left something to be desired. After all, management guided for relatively tepid sequential growth at best.

It's easy for hot stocks to cool down a bit when results don't meet lofty expectations. I think the reaction to the first-quarter figures wasn't justified, and like Moore I'm feeling like this stock could be a buy just now.

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Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nvidia. The Motley Fool has a disclosure policy.