We recently published a list of 12 Best Growth Stocks to Invest In According to Analysts. In this article, we are going to take a look at where Astera Labs, Inc. (NASDAQ:ALAB) stands against other best growth stocks to invest in according to analysts.
Companies experiencing above-average earnings growth, which is often fueled by innovations and market expansions, are known as growth stocks. However, investing in them requires more than just chasing their rising share prices. These companies typically command higher valuations than their peers, which reflects investor confidence in their future potential. While they offer the prospect of substantial returns, they also come with heightened volatility and are susceptible to economic pressures like inflation and supply chain disruptions. Despite recent market fluctuations, periods of decline can present strategic entry points for long-term investors.
On February 20, Adam Crisafulli, Vital Knowledge founder, and Ryan Detrick, Carson Group chief market strategist, joined ‘Closing Bell Overtime’ on CNBC to discuss the state of the market. Detrick addressed the broadening nature of the market and the lack of panic following recent Fed minutes. He noted that all 11 sectors have increased year-to-date, with 7 sectors outperforming the S&P 500. Detrick highlighted that after two consecutive years of over 20% gains, the market has continued its upward trajectory, showing an increase of over 4%, almost 5%, so far this year. He emphasized that surprises in a bull market typically lean towards positive outcomes and reiterated that the ongoing rotation among sectors is beneficial for investors because it allows for a diversified portfolio.
Crisafulli then shifted the focus to specific companies which are set to report earnings. He connected these companies to trends in digital payments and marketing, emphasizing the role of data in driving customer loyalty and business growth in a modern economy. He discussed a broader theme of valuation reversion among high-multiple stocks and suggested that cheaper segments of the market are starting to catch up in terms of valuation expansion. Detrick added to this by discussing record highs for major indexes such as the S&P 500 and NASDAQ 100, as well as European indices like the DAX and Stoxx Europe 600. He also mentioned gold trading at record levels and questioned whether it is wise to invest at these heights or if the opportunity has passed. Detrick explained that they incorporated gold into their tactical models back in March 2023, adding more during a pullback post-election when the dollar rose sharply. He attributed gold’s rise to central bank indecision and suggested that the US dollar may have peaked. He advocated for including gold in a diversified portfolio, particularly within a 60-40 asset allocation model.
The overall discussion underscored the importance of diversification in investment strategies amidst changing market dynamics.
Methodology
We used stock screeners to compile a list of the top growth stocks. We then selected 12 stocks that had high average upside potential of over 30% and were the most popular among elite hedge funds. The stocks are ranked in ascending order of their average upside potential. We’ve also added the hedge fund sentiment for each stock, as of Q4 2024, which was sourced from Insider Monkey’s database.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 373.4% since May 2014, beating its benchmark by 218 percentage points (see more details here).
Astera Labs, Inc. (NASDAQ:ALAB)
Number of Hedge Fund Holders: 51
Upside Potential as of February 19: 39.91%
Astera Labs, Inc. (NASDAQ:ALAB) leads semiconductor-based connectivity solutions and specializes in intelligent technologies for cloud and AI infrastructure. Through its sophisticated connectivity platform, including smart fabric switches, DSP retimers, and the COSMOS software suite, it empowers hyperscalers and OEMs to optimize and manage large-scale deployments. This drives the advancements in AI and cloud computing.
On February 11, Needham’s Quinn Bolton reiterated a Buy rating with a $140 target for the company. This sentiment came from its strong performance and growth potential. Its Q4 2024 results beat expectations with a 25% quarterly and 179% year-over-year increase. Revenue jumped 242% for the full year 2024. This was driven by Taurus SCMs, Aries SCMs, and Aries PCIe retimers, which demonstrate product diversification. All of these are the company’s high-speed connectivity solutions designed to enhance data transfer within AI and cloud infrastructure.
The company is also developing Leo CXL controllers and Scorpio Smart Fabric Switches, with Scorpio projected to become its largest product line, targeting the expanding AI fabric market. These new developments are expected to optimize data flow and interconnectivity within AI systems. Hyperscaler investments in AI and cloud infrastructure are fueling Astera Labs, Inc. (NASDAQ:ALAB)’s growth. It’s involved in the development of the Ultra Accelerator Link (UA Link), which is an open standard for AI cluster interconnects. The company now projects FQ1 2025 revenues between $151 million and $155 million and expects Scorpio products to contribute at least 10% of this 2025 revenue.
Alger Small Cap Growth Fund highlighted the company’s strong performance which was driven by its innovative connectivity solutions for data-centric systems and exceeding analyst expectations in recent results. The fund stated the following regarding Astera Labs, Inc. (NASDAQ:ALAB) in its Q4 2024 investor letter:
“Astera Labs, Inc. (NASDAQ:ALAB) is a semiconductor company specializing in connectivity solutions for data-centric systems, including cloud computing, artificial intelligence, and machine learning. Its products optimize data flow and performance in servers, GPUs, and AI accelerators, addressing bottlenecks in high-performance computing environments. The company’s Intelligent Connectivity Platform (ICP) integrates advanced semiconductor hardware with the proprietary COSMOS software suite, delivering customizable and cost-effective solutions. Astera’s Platform-Specific Standard Products (PSSP) enhance flexibility with features such as predictive analytics, monitoring, and troubleshooting. Backed by strong relationships with leading cloud and AI providers, we believe Astera is well positioned in rapidly growing markets, demonstrating high profitability and industry-leading gross margins. During the quarter, shares contributed to performance after reporting better-than-expected fiscal third-quarter results, with revenues and gross margins exceeding analyst estimates. Specifically, revenue growth spanned all four product segments, led by accelerated custom silicon sales and robust GPU demand. Management also raised fiscal fourth-quarter guidance, citing expanding product ramps and a broader customer base.”
Overall, ALAB ranks 8th on our list of best growth stocks to invest in according to analysts. While we acknowledge the growth potential of ALAB, our conviction lies in the belief that AI stocks hold great promise for delivering high returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than ALAB but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
READ NEXT: 20 Best AI Stocks To Buy Now and Complete List of 59 AI Companies Under $2 Billion in Market Cap
Disclosure: None. This article is originally published at Insider Monkey.
