We value ALAB at $100 or 36x P/E applied to our C27 earnings power of $2. We choose C27 basis for our valuation based our view that Astera’s AI data center growth drivers are in early innings. Our 36x P/E multiple is at a 9% premium to 33x average 1-year forward P/E of high-growth AI peers. We believe strong earnings growth over the next three years and attach rates to some of the fastest-growing AI demand trends justify the premium. We model ALAB to grow EPS at 49% CAGR in the next three years vs. the 27% AI peer average.

This stock is High Risk based upon our quantitative model but assigning a High Risk rating is not supported by other qualitative factors such as Astera’s growth has entered a new diversified more stable phase post the ramp of new products and new customers, and so a High Risk rating has not been applied.

We note the following upside risks to our target price being exceeded: 1) faster-than-expected adoption of AI products; 2) higher-than-expected ASPs on future PCIe retimer generations; and 3) lower customization at Nvidia customer.

Downside risks to our target price: 1) share loss to bigger competitiors like Broadcom/Marvell; 2) moderate customer concentration risk at Nvidia/AWS; 3) new products rollout risk, and 4) lower-than-expected gross margin mix.