Date: 2026-02-22 | Period: Q4 FY25 (quarter ending Dec 31, 2025) Position: Long ALAB, 5.2%
Solid beat, but the trajectory is decelerating and the market is right to reprice. Stock -20% post-earnings is the market smelling what the data shows: three consecutive quarters of YoY deceleration, gross margin guided lower, and a CFO departure at an awkward moment. I'm holding but not adding. Scorpio X is the re-acceleration catalyst — if H2 FY26 doesn't deliver it, I trim.
| Q1 FY24 (Mar-24) | Q2 FY24 (Jun-24) | Q3 FY24 (Sep-24) | Q4 FY24 (Dec-24) | Q1 FY25 (Mar-25) | Q2 FY25 (Jun-25) | Q3 FY25 (Sep-25) | Q4 FY25 (Dec-25) | Q1 FY26E (Mar-26E) | |
|---|---|---|---|---|---|---|---|---|---|
| Revenue ($m) | ~53 | ~68 | ~116 | ~141 | ~133 | ~171 | ~278 | 270.6 | 286–297 |
| YoY % | 179% | 144% | 150% | 104% | ~151% | ~151% | ~140% | 92% | ~62%E |
| QoQ % | — | ~28% | ~71% | ~21% | ~-6% | ~29% | ~63% | -3% | ~8%E |
Note: Q1-Q3 FY25 individual quarters estimated from FY25 total (852.5m)andknownQ4(270.6m). Q4 FY24 = $270.6m / 1.92 ≈ $141m.
Beat history: | Quarter | Guide | Actual | Beat | |---------|-------|--------|------| | Q2 FY25 | 155m| 171m | +10.3% | | Q3 FY25 | 207m| 278m | +11.5% | | Q4 FY25 | $251m | $270.6m | +8.0% |
Consistent beat pattern, but magnitude narrowing slightly. Management guides conservatively — factor this in when sizing Q1 FY26.
YoY: DECELERATING. 150% → 104% → 92% is three straight quarters down. Absolute growth rates are impressive at scale — 92% YoY on $271m is not trivial — but my framework calls two quarters of deceleration as the sell signal. We're at three.
The mitigating case: Q1 FY26 guide of ~$291.5m midpoint implies ~62% YoY growth, which continues the deceleration trend. The Scorpio X ramp is supposed to inflect this in H2 FY26. That's the entire re-acceleration thesis. Without it, ALAB is a decelerating growth company trading at 32x TTM revenue.
QoQ is messier: Q3 FY25 QoQ was massive (+63%), Q4 was -3% (slight decline), Q1 FY26E is +8%. The big Q3 jump then flat-to-down Q4 suggests timing/pull-forward. Watch whether Q2 FY26 shows sequential re-acceleration.
1 percentage point matters: Q1 FY26 guided 8% QoQ midpoint annualises to ~36%. If Scorpio X ramps and we see 10% QoQ in Q2 FY26, that's ~46% annualised — meaningfully different thesis.
| Q3 FY25 | Q4 FY25 | Q1 FY26E | |
|---|---|---|---|
| Non-GAAP GM | ~76.4% | 75.7% | ~74% |
| Non-GAAP Op Margin | ~38% | 40.2% | ~37–38%E |
| FCF Margin | — | — | 33.1% [FY25 annual] |
GM compression is structural, not temporary. As Scorpio (lower margin than Ares retimers) becomes a larger share of revenue, blended GM will continue to drift lower. Guide to 74% is 170bps below Q4. The question is where it stabilises. If Scorpio P/X settle at 70-72% GM and Ares (Taurus, Leo) stay at 77-78%, the blended rate depends entirely on mix. Management hasn't given a floor.
Operating leverage is real but counteracted. OpEx up $16m QoQ in Q4 from R&D expansion. They're investing ahead of Scorpio X. At scale, these OpEx dollars should leverage — but that assumes the revenue ramp materialises.
SBC: 18.8% of revenue ($160m FY25). This is genuinely high. It dilutes economic ownership meaningfully. Q1 FY26 share count ~184m (vs ~181m Q4 FY25) = 1.5% QoQ dilution rate. At this pace, annual dilution is ~6%. Not disqualifying for a hypergrowth company, but at 32x revenue it matters for per-share value.
Ares (PCIe/CXL retimers): +70% YoY FY25. Still the revenue backbone. Leo CXL first deployment (Azure M-series with Microsoft/Intel/SAP) is strategically important — CXL is a multi-year secular tailwind for memory connectivity.
Taurus (800G optical DSPs): 4x YoY FY25 — the standout growth. Under-discussed relative to Scorpio but compounding fast.
Scorpio P: >15% of FY25 revenue and exceeded 10% in Q4 FY25 — so accelerating within the quarter. Production ramp is live.
Scorpio X (scale-up switching): Initial shipments Q4 FY25. Material ramp guided H2 FY26. This is the $20B TAM prize — COO Sanjay Gajendra targeting "at least half" of scale-up switching by 2030. If credible, this is a 10x revenue story from here. If it slips, the stock is stranded.
UA Link: AWS-backed (Phranyon Four, 2027 timeline), AMD MI 500 integration. Competing with NVLink is audacious. The 2027 timeline is real enough that it belongs in valuation scenarios but not in base case numbers.
CEO Jitendra Mohan: Consistent underpromise/overdeliver pattern across 4 quarters. Beat history is a +9% average — that's systematic, not lucky. Language on Scorpio X is appropriately guarded ("initial shipments", "material ramp H2 2026") — not overpromising.
CFO departure: Mike Tate out, Desmond Lynch (ex-Rambus) in March 2. This concerns me. CFO transitions at an inflection point — when Scorpio X is ramping, Amazon warrant is live, and GM compression is happening — add execution risk. Lynch's Rambus background (IP licensing, semiconductors) is relevant but this is a change I need to watch. Rambus is a fine company but a different business model.
Amazon warrant (3.3m shares tied to $6.5B cumulative purchases through 2033): Long-term customer alignment. Also a concentration signal — ALAB's largest hyperscaler relationship is now contractually bound to the stock price. This cuts both ways.
Promise tracker (from _ROLLING.md): All prior promises delivered. Management credibility is intact going in.
| Metric | Value | Context |
|---|---|---|
| Market cap | $28.7B | Post -20% sell-off |
| Run-rate revenue (Q4 × 4) | $1.08B | |
| Run-rate P/S | 26.6x | |
| TTM P/S | 33.7x | |
| TTM P/E | 68.2x | |
| FCF yield (FY25) | ~1.0% | $282m FCF / $28.7B |
| FY25 revenue | $852.5m |
CRDO comparison (the key relative value question): | | ALAB | CRDO | |---|---|---| | YoY growth | 92% | ~240%+ | | EV/Rev (approx) | 26x run-rate | ~22x TTM | | Growth-adjusted (EV/Rev ÷ growth) | ~0.28x | ~0.08x |
CRDO is growing 2.5–3x faster and trading at a fraction of the growth-adjusted multiple. I own both. At the margin, every incremental dollar of AI connectivity spend should be in CRDO right now, not ALAB. ALAB is the quality compounder; CRDO is the hypergrowth opportunity. Different positions, but the relative weighting of CRDO > ALAB makes sense.
Jamin Ball SaaS context: ALAB isn't SaaS but the run-rate P/S framework applies. 26x run-rate for 60%+ YoY growth with 40% op margins and FCF profitable is defensible if you believe re-acceleration. Without re-acceleration, 15-18x is more appropriate → 40-50% further downside from here.
No traditional SaaS RPO/NRR. But proxy indicators:
Missing information: I don't know the design win count for Scorpio X. This is the single most important data point for the thesis and it's not disclosed.
Prior: No prior wsm analysis on ALAB. First formal review.
Going in: ALAB at 5.2% — a meaningful but not top-5 position. My sense was strong position in AI connectivity (Ares dominant), expensive but growing into the valuation.
Updated:
Hold at 5.2%. Not adding here.
Watch list for Q1 FY26 (report ~May 5, 2026):
If Q1 FY26 shows: Re-acceleration in QoQ growth + Scorpio X volume language strengthens → Add to 7-8%.
If Q1 FY26 shows: Another deceleration + Scorpio X language softens to "late H2" or "FY27" → Trim to 2-3% and deploy proceeds into CRDO.
No second chances if management misses twice on Scorpio X timeline.
-wsm (Long ALAB, 5.2%)