Why Astera Labs Rocketed Higher in May

Shares of AI connectivity provider Astera Labs (NASDAQ: ALAB) rallied 76.1% in May, according to data from S&P Global Market Intelligence.

Astera has become one of the leading names in connectivity for artificial intelligence systems, as networking between servers, chips, and memory is increasingly important in the age of agentic AI.

Thus, it's no surprise Astera rose last month, as it reported strong earnings and gave a bullish outlook amid a strong month for AI chip stocks generally.

Astera was stellar in May

In its fiscal first quarter, Astera Labs saw revenue jump 93.5% to $308.4 million, with adjusted (non-GAAP) earnings jumping 84.8% to $0.61. Both figures handily beat analyst estimates. Management also strongly guided to $360 million in revenue at the midpoint for the current quarter, which would amount to very strong 26% quarter-over-quarter growth.

Aside from the strong results, Astera stock jumped again on May 19, rising over 17% at one point on the day, after the company presented at an industry conference and a sell-side analyst raised its price target.

At the J.P. Morgan Global Technology, Media and Communications Conference, CEO Jitendra Mohan gave very positive commentary on the company's growth outlook, particularly the ramp for Astera's new data center switch chipset, the Scorpio X fabric switch. Mohan said the product should ramp to become the company's largest product by sales by the end of the year. That's an exciting feat, given that Astera just introduced the Scorpio X in early May.

That same day, tech analysts at Evercore ISI raised the firm's price target on Astera shares from $215 to $297. The analysts cited positive channel checks, noting that the progression of agentic AI is placing an onus on low-cost-per-token inference, which requires several types of chips, not just expensive training-oriented GPUs. The optimization across GPUs, CPUs, ASICs, and memory requires ever-increasing connectivity, which benefits Astera's product portfolio.

Image source: Getty Images.

Put Astera in the AI winner basket

Astera is up 250% over the past year, and currently trades at a lofty 105 times this year's earnings estimates. Like several other semiconductor stocks that produce GPUs, CPUs, memory, connectivity, or the machines that build these chips, just about every company exposed to the agentic AI build-out has had a fantastic year.

Still, at these levels, valuations are quite high, and a pullback is to be expected. One might have begun, in fact, on Friday. That being said, Astera should be a part of any investor's "basket" of AI beneficiaries to buy on any large dips.

That's because the AI build-out seems set to continue. Given the massive investment news we have seen recently, including Alphabet's announcement that it will raise $80 billion in stock to fund its AI build-out, the chip bull market seems set to continue over the next couple of years.

JPMorgan Chase is an advertising partner of Motley Fool Money. Billy Duberstein and/or hsi clients have positions in Alphabet. The Motley Fool has positions in and recommends Alphabet and JPMorgan Chase. The Motley Fool recommends Astera Labs. The Motley Fool has a disclosure policy.