As artificial intelligence (AI) continues its meteoric rise, the demand for faster, smarter, and more integrated infrastructure is reaching critical levels. Companies focused on data-centric connectivity solutions, high-speed data infrastructure, and advanced semiconductor and IoT technologies are at the forefront, providing the backbone for AI’s explosive growth.
Last week, research firm Needham attended the Open Compute Project Summit, and came away bullish on semiconductors and AI. Analyst N. Quinn Bolton identified semiconductor companies helping drive advancements in the industry, particularly in areas critical to AI and high-speed data infrastructure.
Within that niche, Astera Labs, Inc. (ALAB), Credo Technology Group (CRDO), and Semtech Corporation (SMTC) all have a “Buy” rating from Bolton, with each stock showing a double-digit growth potential as their innovations align with the accelerating AI trend reshaping industries worldwide.
AI Growth Stock #1: Astera Labs
Santa Clara-based Astera Labs, Inc. (ALAB), incorporated in 2017, has carved out a niche in the world of data-centric systems. As a fabless semiconductor company, Astera is all about cutting-edge connectivity solutions. Its lineup of integrated circuits (ICs), boards, and services is designed to eliminate performance bottlenecks, especially in compute-heavy environments.
By partnering with top-tier processor vendors, cloud giants, and manufacturing powerhouses, Astera Labs helps enterprises stay ahead of the curve, ensuring smooth, lightning-fast PCIe (peripheral component interconnect express) connectivity.
Valued at a market cap of $10.95 billion, the semiconductor connectivity innovator made its public trading debut on March 20, and since then, the stock has risen 13.3%. The stock surged nearly 35% over the first three trading sessions, hitting an all-time intraday high of $95.21 by March 26. But like many Wall Street newcomers, ALAB faced early turbulence, dipping to a low of $36.22 by Aug. 7.
That low, however, marked a turning point, and ALAB has more than doubled since then.
Astera Labs reported solid fiscal Q2 earnings results on Aug. 6, sailing past Wall Street’s forecasts. Its total revenue rose a whopping 619% year over year and 18% sequentially to $76.9 million, beating estimates by about 6%. Its adjusted EPS climbed to $0.13 from a loss per share of $0.14, topping the analyst consensus by 19%.
ALAB ended Q2 with an adjusted gross margin of 78% and an operating income of $18.7 million. The company’s cash and cash equivalents amounted to $421.1 million, compared with $45.1 million as of Dec. 31, 2023.
Astera Labs' CEO, Jitendra Mohan is expecting even stronger gains as new AI platforms ramp up production. With AI adoption accelerating and design wins piling up, Mohan is confident Astera will outpace industry growth thanks to its deep collaborations with hyperscalers and innovative AI platform providers.
As the company gears up to release fiscal Q3 earnings results after the close on Nov. 4, management forecasts revenue between $95 million and $100 million, with non-GAAP gross margin projected to be approximately 75% and non-GAAP EPS estimated to land between $0.16 and $0.17.
Analysts tracking Astera Labs predict a GAAP loss of $0.54 per share in fiscal 2024 but foresee a bright horizon ahead, forecasting a profit of $0.08 in 2025 as the script flips.
Needham analyst Bolton is bullish on Astera Labs, upping the stock’s price target to $80 from $65. He notes the considerable traffic at the company’s booth at last week’s event, reflecting excitement over the newly launched Scorpio fabric switch family. The P-Series switch family, featuring 4-port, 64-lane PCIe Gen 6/5 switches, is particularly tailored for AI head node applications.
Bolton anticipates that the P-Series will achieve a one-to-one attachment rate with each Nvidia (NVDA) Blackwell GPU in servers, potentially boosting opportunities by two to four times. As the X-Series details are set to unfold soon, Astera’s momentum appears strong.
ALAB stock has a consensus “Strong Buy” rating overall. Among the 11 analysts covering the stock, nine suggest a “Strong Buy,” one advises a “Moderate Buy,” and the remaining one analyst maintains a “Hold.”
The mean price target for ALAB is $71.36, a discount to current levels. The Street-high target price of $85 implies that the stock could rally as much as 13.9%.
AI Growth #2: Credo Technology Group
Founded in 2008 and based in Grand Cayman, Credo Technology Group Holding Ltd (CRDO) has become a key player in high-speed connectivity. The company delivers cutting-edge solutions for optical and electrical Ethernet applications worldwide.
Boasting a market cap of $6.4 billion, Credo’s innovative product lineup includes HiWire active cables, SerDes chiplets, and low-power line card PHYs. Serving hyperscalers, OEMs, and the enterprise market, Credo’s technology drives faster, more efficient data flow, helping power the future of global digital communication with seamless precision.
Shares of the semiconductor technology provider rallied 179% over the past 52 weeks, with an impressive 33.2% jump this past month alone. In fact, CRDO hit its all-time high of $40.37 last week on Oct. 14.
Credo unveiled its fiscal Q1 2025 earnings results on Sept. 4, showcasing impressive revenue of $59.7 million, which exceeded Wall Street's estimates with a staggering 70% year-over-year growth. This surge was primarily driven by a remarkable 79.3% increase in total product revenue, which accounted for nearly 90.2% of the company’s top-line figure.
Adjusted EPS stood at $0.04, marking a significant turnaround from the previous year's adjusted loss of $0.03, although it fell slightly short of expectations. The company closed Q1 on a strong note, reporting a robust cash and short-term investment balance of $398.6 million.
CEO Bill Brennan said that customers' AI infrastructure deployments are the key drivers of both current and anticipated growth. Brennan said, “Going forward in fiscal 2025 and beyond, we expect contributions from our entire suite of innovative, power and cost-efficient, high-speed connectivity solutions.”
For fiscal Q2, management estimates revenue between $65 million and $68 million, while the non-GAAP gross margin is anticipated to be slightly higher, between 62% and 64%.
Over the longer term, analysts tracking Credo expect the company’s GAAP loss to shrink a notable 87.5% annually to $0.02 per share in fiscal 2025. In fiscal 2026, Credo is projected to turn the tide, with a GAAP profit of $0.37 per share.
Analyst Bolton is bullish on CRDO, raising his price target to $43 from $33 following the Open Compute Project Summit. He highlighted strong demand for Credo’s AEC cables, particularly from Amazon (AMZN), while noting that conditions remain stable with other hyperscalers like Microsoft (MSFT).
Bolton believes that Amazon's revenue is set to reaccelerate in the latter half of 2025, alongside a robust recovery for Microsoft and an expected ramp from Credo’s third hyperscaler customer. Alongside optimism over Credo’s entry into the PCIe retimer market, Bolton’s outlook for the company is bright.
Overall, Wall Street is upbeat, with a consensus “Strong Buy” rating. Among the nine analysts covering the stock, seven suggest a “Strong Buy,” one recommends a “Moderate Buy,” and one backs a “Moderate Sell.”
Although the stock currently trades above the mean price target of $37.11, the Street-high target of $45 suggests the stock could rally as much as 14.6%.
AI Growth Stock #3: Semtech Corporation
Semtech Corporation (SMTC), incorporated in 1960, designs, develops, manufactures, and markets analog and mixed-signal semiconductors and advanced algorithms. The California-based firm designs high-speed data communication products that power data centers, enterprise networks, and optical infrastructures.
With a rich portfolio spanning IoT modules, video-over-IP technology, and advanced voltage protection, Semtech enables the seamless flow of data across industries. By blending cutting-edge engineering with precision algorithms, it helps shape modern connectivity, delivering solutions that span from industrial applications to medical technology, serving clients globally across North America, Europe, and Asia-Pacific. Its market cap currently stands at $2.85 billion.
Over the past 52 weeks, SMTC has rallied 200%, including a recent sprint of 58.7% in just the past three months. The stock reached a new two-year high of $49.53 on Sept. 26.
SMTC stock rallied over 11% on Aug. 28 after its fiscal Q2 earnings report exceeded expectations. Semtech reported revenues of $215.4 million - lower than $238.4 million in the year-ago quarter, but still beating projections. Adjusted EPS dipped by 15.4% year over year to $0.11, and also surpassed consensus estimates. The company’s adjusted gross margin came in at 50.4%.
Key to Semtech’s success is its focus on the industrial and communications sectors, particularly its LoRa (Long Range) technology - a vital player in the expanding Internet of Things (IoT) market. LoRa’s low-power, long-range communication capabilities are finding growing use across smart utilities, healthcare, factory automation, and even automotive facilities.
As Semtech continues to expand its IoT portfolio, the company’s management sees significant revenue growth ahead. With LoRa consumption rising, infrastructure remains a strong short-term tailwind. For Q3, the management projects sales to increase to $233 million (plus or minus $5 million), while EPS is estimated to be around $0.23 per share.
Analysts project Semtech to reduce its losses by 80% year over year to $0.07 per share in fiscal 2025, paving the way for a return to a profit of $0.78 per share in fiscal 2026.
Analyst Bolton has a $50 price target on SMTC, hinting at 9.3% potential upside. As per the analyst, Semtech is anticipated to benefit from Nvidia's increased usage of copper (HGZ24).
SMTC has a consensus “Strong Buy” rating overall. Of the 12 analysts in coverage, nine recommend a “Strong Buy,” one suggests a “Moderate Buy,” and the remaining two have a “Hold.”
The average analyst price target for SMTC is $52.60, indicating a potential upside of 14.9%. The Street-high target price of $61 implies a 33.2% upside potential.
On the date of publication, Sristi Suman Jayaswal did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
