Astera Labs Plunge Confirms Margin Fears, Deepening Valuation Gap to Targets

What happened

Astera Labs stock plummeted 23.86% over the past week to $129.32 following a disappointing earnings release, now trading 58% below Wall Street price targets. This aligns with the DeepValue master report's WAIT rating, which highlighted looming margin pressure from Amazon warrant accounting starting in Q2 2026. The earnings likely exposed early gross margin compression or revenue growth deceleration, validating concerns over customer concentration and hardware mix shifts. Such headwinds are now being priced in, creating a stark disconnect from optimistic analyst targets. Investors must now await Q2 results to see if Scorpio ramps can offset these challenges or if further downside is inevitable.

Implication

The earnings plunge reinforces the need for caution, with margin headwinds now evident and growth uncertainty heightened. Focus on Q1 2026 results for gross margin trends and Scorpio volume updates, which will set expectations for Q2's warrant impact. Any margin decline beyond the modeled ~200 bps could trigger further sell-offs, making the $115 attractive entry point more relevant. Patience is critical; entering prematurely risks losses if fundamentals worsen without Scorpio offsets. Only if Q2 shows contained margin pressure and robust Scorpio ramps should investors consider re-engagement, but current data suggests staying sidelined.

Thesis delta

The earnings plunge strengthens the existing WAIT thesis by confirming margin and concentration risks, but does not fundamentally alter the outlook until Q2 data arrives. It raises the stakes for monitoring, as any gross margin drop exceeding 400 bps or revenue growth below guide could shift the call to a more bearish stance. The attractive entry remains at $115, but downside risk has increased, emphasizing vigilance ahead of key catalysts.