Astera Labs stock made a strong bearish breakout and dropped to its lowest level since May 19. The shares fell to a low of $229, down 54% from their highest point this year, while the company’s market capitalization shrank from over $82 billion to $39.4 billion. Attention now turns to the upcoming earnings report, which should provide more color on the state of its business.
Astera Labs earnings to show strong growth
Astera Labs is a top player in the AI industry, where it designs high-speed interconnectors that link CPUs, GPUs, memory, and networking inside servers and racks. As AI systems scale more, demand for these products has continued to rise.
For example, Astera Labs made less than $80 million in revenue in the whole of 2022. In the second quarter of the year, the company made $392.4 million in revenue, a sign of how its growth has soared.
Wall Street analysts are highly optimistic about the company’s revenue growth. The average estimate among analysts is that its third-quarter revenue jumped by 138% to $550 million, with the most optimistic one seeing its revenue rising to $557 million.
Astera Labs earnings have also jumped in the past few quarters and analysts see the trend continuing. The estimated earnings-per-share is expected to come in at $1.19, up sharply from 50 cents in the same period last year. Astera has a long track record of beating analysts’ estimates, meaning that the trend may continue.
Options market points to ALAB volatility
The options market suggests that the Astera Labs stock will be highly volatile in the coming days. Options expiring this week have an implied volatility of 180%, more than double than the historical volatility of 83.6%.
Most of the call options are concentrated at $250, suggesting a 10% pop above the current level. On the other hand, most puts are at $220.
Astera Labs faces some major risks. For one, strong earnings reports have not guaranteed a stock surge. A good example of this is SanDisk, which has slumped in the past few days despite publishing strong numbers. Also, the earnings come at a time when investors are concerned about the AI bubble.
Astera Labs stock price technical analysis
ALAB stock chart | Source: TradingView
The daily chart shows that the ALAB stock has been under pressure in the past few months. It has now dropped below the important support level of $244, its lowest level in July this year.
Most importantly, the stock has dropped below the 61.8% Fibonacci Retracement level. In most cases, moving below that retracement level normally confirms the bearish outlook.
The stock has remained below the 50-day and 100-day moving averages, a sign that bears have prevailed.
Therefore, the most likely scenario is where the stock continues falling. If this happens, the next important target to watch will be the psychological level of $200. On the other hand, a move above the resistance level of $245 will invalidate the bearish outlook.
A key caveat to remember is that since a lot of bearishness has been priced in, there is a risk that the stock may have a dead-cat bounce after its earnings report.
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