Astera Labs, a Zacks Rank #1 (Strong Buy), is a global leader in purpose-built connectivity solutions for rack-scale AI systems. The company is a pioneer in software-defined architecture that is both scalable and customizable. The stock is displaying relative strength, breaking out to the upside amid a bullish move that pushed shares to new all-time highs.

The price movement is a sign of strength as we head deeper into the second half of the year. Increasing volume has attracted investor attention as buying pressure accumulates in this top-ranked stock.

Astera Labs is part of the Zacks Internet – Software industry group, which currently ranks in the top 30% out of more than 250 industries. Because this group is ranked in the top half of all Zacks Ranked Industries, we expect it to outperform the market over the next 3 to 6 months, just as it has year-to-date:

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Also note the favorable characteristics of this group below. Stocks in this industry are projected to experience above-average earnings growth, which signifies a powerful tailwind that should lead to higher prices in the future:

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Historical research studies suggest that approximately half of a stock’s price appreciation is due to its industry grouping. In fact, the top 50% of Zacks Ranked Industries outperforms the bottom 50% by a factor of more than 2 to 1.

It’s no secret that investing in stocks that are part of leading industry groups can give us a leg up relative to the market. By focusing on leading stocks within the top industries, we can dramatically improve our stock-picking success.

Company Description

Semiconductor stocks and related companies remain at the heart of the AI movement.

Astera Labs has been a major beneficiary. The company designs and manufactures semiconductor-based connectivity solutions for cloud and AI infrastructure. Astera offers an intelligent connectivity platform and high-speed connectivity integrated circuits as well as modules, boards, and other related products used in data centers.

Partnerships remain a key catalyst for Astera. The company has deepened its collaboration with chip leader Nvidia as it integrates NVLink Fusion into its connectivity platform, delivering low-latency, memory-coherent links for GPU clustering. These are essential for powering the next generation of large language models and agentic AI models.

ALAB stock has broken out to all-time highs following its latest earnings release. The broader technology sector is providing a durable backing for this industry leader.

Earnings Trends and Future Estimates

Astera has exceeded the earnings mark in each quarter since last year’s IPO.

Earlier in August, the AI infrastructure provider delivered second-quarter earnings of 44 cents per share, which marked a 33.3% beat relative to consensus estimates. Revenues of $191.93 million surpassed projections by 11.1%. The figures translated to 238% year-over-year bottom-line growth on a 150% top-line improvement.

The company has delivered a trailing four-quarter average earnings surprise of 32.2%. Consistently beating earnings estimates is a recipe for success.

For the current quarter, the San Jose, California-based company expects to earn an adjusted 39 cents per share on sales of $206.5 million. Prior to the latest earnings release, Wall Street had been forecasting Q3 earnings of 34 cents on $181 million in sales. Clearly, investors are reacting positively to the lifted guidance.

Analysts are now in agreement and have raised their Q3 estimates by 14.71% in the past week to align with company expectations. The projected 39-cent profit in the current quarter would translate to a nearly 70% growth rate relative to the same quarter in the prior year.

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Chief Executive Jitendra Mohan remains upbeat on future growth. “Astera Labs is at the forefront of the AI infrastructure transformation, and we are accelerating our investments to realize our vision of rack-scale connectivity in next-generation AI systems,” Mohan said in a news release.

ALAB Shares Go Full Steam After Earnings

This market leader has seen its stock advance more than 200% off the April lows. Only stocks that are in extremely powerful uptrends are able to experience this type of outperformance. This is the kind of stock we want to include in our portfolio – one that is trending well and receiving positive earnings estimate revisions.

Astera (ALAB Quick QuoteALAB - Free Report) stock has broken out to all-time highs following the latest earnings announcement:

Image Source: StockCharts

Notice how shares found support in June at both the 50-day (blue line) and 200-day (red line) moving averages, which are sloping up. The stock had been making a series of higher highs over the past few months. With both strong fundamental and technical indicators, ALAB stock is poised to continue its outperformance.

Empirical research shows a strong correlation between near-term stock movements and trends in earnings estimate revisions. As we know, Astera has recently witnessed positive revisions.  As long as this trend remains intact (and Astera continues to deliver earnings beats), the stock will likely continue its bullish run.

Bottom Line

Backed by a leading industry group and history of earnings beats, it’s not difficult to see why Astera Labs is a compelling investment. Robust fundamentals combined with an appealing technical trend certainly justify adding shares to the mix.

Recent positive earnings estimate revisions should also serve to create a ‘floor’ in terms of any sudden or unexpected downside moves. If you haven’t already done so, be sure to put ALAB on your shortlist.

Disclosure: ALAB is a current holding in the Zacks Headline Trader portfolio.