Despite recent volatility, the artificial intelligence (AI) infrastructure market remains red hot. Shares of Astera Labs (ALAB -7.92%) have rocketed 70% higher this year. However, the stock has pulled back ahead of the company's second-quarter earnings report on Aug. 4. That dip might look like a buying opportunity, but there are enough risk factors to keep me cautious. Here's why I'm bullish on Astera Labs long-term -- but would wait until after earnings to start a position.
Image source: Getty Images.
Favorable outlook for AI spending
Astera Labs serves as the connectivity backbone for AI servers in data centers. While it doesn't disclose specific customer names, it serves major hyperscalers -- and those companies continue to spend aggressively on AI compute.
Alphabet, for example, just raised its full-year capital expenditure guidance to around $200 billion and plans further spending increases in 2027. This is extremely bullish for the AI infrastructure supply chain, including Astera Labs.
Astera reported first-quarter revenue of $308 million, up 14% quarter over quarter and 93% year over year. Management guided for second-quarter revenue to come in between $355 million and $365 million, representing another significant increase.
AI servers are packing more chips into each rack, increasing the need for high-bandwidth connectivity and creating more opportunities for Astera to sell in each deployment. Management is clearly focused on attaching as much dollar content as possible to every AI accelerator in a rack, which should also help support healthy margins.
Looking ahead, Astera is expected to ramp up its new 320-lane Scorpio X fabric switches in the second half of 2026 as hyperscalers build larger AI chip clusters that demand higher-bandwidth connectivity.
NASDAQ: ALAB
Key Data Points
Risks to watch
The stock has already run up this year, and its current 93x forward price-to-earnings multiple already prices in a lot of momentum. That alone makes me cautious, and it adds to other business risks.
Customer concentration stands out. Astera Labs sells to highly profitable hyperscaler businesses, but reliance on a handful of buyers could pressure growth if data center spending stalls. In 2025, one customer accounted for more than 70% of revenue.
Competition is also intensifying. Connectivity and networking are increasingly crowded areas, with much larger semiconductor companies such as Broadcom and Marvell Technology investing in these opportunities. Astera can still win, but it's operating next to giants with deeper resources and broader product portfolios.
That's why I would rather wait until after the results, when we'll know whether guidance supports the current valuation. What could make the stock attractive after earnings -- beyond the headline numbers -- is clear progress in diversifying the customer base and building momentum in selling more products to each customer.
