Shares of Astera Labs (ALAB) plunged 21.4% in extended trading Wednesday, closing at $143.71 after the company revealed a significant warrant agreement with Amazon.com. The stock traded as low as $141.68 on heavy volume of approximately 16.4 million shares.
Deal Structure Weighs on Financial Outlook
In an SEC filing, Astera disclosed it issued a warrant to Amazon.com NV Investment Holdings LLC on February 5, granting the right to purchase up to 3.26 million shares at $142.82 each. The warrant vests as Amazon and its affiliates achieve purchase milestones totaling up to $6.5 billion for Astera's connectivity products.
Chief Financial Officer Mike Tate explained on the earnings call that the accounting for this warrant will create "a non-cash hit to gross margins of about two points a quarter" beginning in the second quarter, representing 200 basis points of pressure. This disclosure triggered investor concerns about margin quality in the AI infrastructure sector.
Strong Results Overshadowed by Structural Concerns
Astera reported robust fourth-quarter financials, with revenue surging 92% year-over-year to $270.6 million and adjusted earnings of $0.58 per share. The company provided March-quarter guidance of $286-$297 million in revenue and $0.53-$0.54 in adjusted profit, exceeding analyst expectations.
Despite these strong numbers, analysts focused on the implications of the Amazon agreement. TD Cowen's Sean O'Loughlin noted that supplying hyperscale data centers represents "a double-edged sword," offering significant revenue opportunity alongside concentration risk. Bank of America maintained a Neutral rating while raising its price target to $200, but flagged the 200-basis-point margin headwind from the warrant.
Leadership Transition Adds to Uncertainty
The company simultaneously announced that CFO Mike Tate will retire on March 2, transitioning to a strategic advisor role through September 1. Desmond Lynch, named as his successor, will receive a $500,000 base salary alongside equity awards.
Market participants now await details on Amazon's purchase ramp and the timing of margin impacts as Astera enters the June quarter. The next significant date is March 2, when Lynch assumes the finance leadership position.
