Astera Labs (ALAB 1.66%) has seen its share price soar almost 400% since its initial public offering in 2024. It provides essential components that enable faster processing speeds for artificial intelligence (AI) workloads in data centers. This is a competitive market, but Astera's robust growth and high margins indicate it is benefiting from a competitive edge. Here's why the stock is a buy heading into 2026.
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Why invest in Astera Labs
Astera Labs was the first in the industry to launch the latest generation PCIe 6 connectivity solutions, which provide higher bandwidth and cleaner signal paths for advanced AI chips in data centers. Astera's revenue grew 104% year-over-year in the third quarter.
What's more, its high margins indicate pricing power. Over the last four quarters, it reported a net profit of $199 million on $723 million in revenue -- a net profit margin of 27%.
NASDAQ: ALAB
Key Data Points
Its margins are expected to increase from higher demand for AI chips over the next several years. Astera's strategy is to tie future revenue to every AI chip shipped worldwide.
While the stock has dropped 38% from its recent high, management has seen the size of its addressable market double in size since last year, reaching approximately $15 billion. With the demand for AI chips expected to continue growing, the stock is a compelling buy at its current discount.
