AI Connectivity Stocks Surge as Nvidia Stalls

Astera Labs stock jumped 9.8% and Marvell Technology gained 7.1% on September 4, while Nvidia shares rose a mere 0.8%. According to a report from Yahoo Finance, the disparity signaled investors were expanding their focus within the artificial intelligence sector beyond just accelerator chips to the companies that supply the critical connectivity between them.

Astera's rally also coincided with market speculation that the company could be added to the S&P 500 index, though it was ultimately not selected in the September rebalancing. The underlying investment thesis centers on the growing need for sophisticated data movement hardware. Larger clusters of AI accelerator chips require components like retimers, switches, optical links, and custom silicon to shuttle data efficiently, preventing expensive processors from sitting idle.

The Focused Connectivity Play

Astera Labs represents a concentrated bet on rack-scale connectivity. The company's second-quarter update indicated that a production ramp in the third quarter for its Scorpio X-Series 320-lane fabric switch was expected to drive its next significant revenue increase. This growth is anticipated alongside opportunities across its other product lines, named Aries, Taurus, and Leo.

The bullish argument for Astera is based on content growth, meaning each new generation of AI server rack may require more connectivity silicon and software. The primary risks, however, are its dependence on a small group of major hyperscale customers, the timing of transitions between product generations, and a stock valuation that assumes strong adoption before every design win converts into actual sales revenue.

The Diversified Portfolio

In contrast, Marvell Technology offers a more diversified approach within the data center. Its business spans custom compute solutions, electro-optics, switching, and interconnect technologies. This breadth provides multiple avenues to benefit as cloud companies redesign their systems for AI workloads.

This diversification forms the core bull case for Marvell, as a single customer's system architecture can drive demand across several of its product families. The associated risk is that large, custom development programs can lead to uneven revenue, with significant costs incurred long before sales are realized. This dynamic can lead investors to overestimate the near-term financial impact of announced design wins.

Hedge Fund and Short Interest Activity

Hedge fund interest in both companies increased in the lead-up to the September rally. Data from Insider Monkey showed 73 funds held positions in Astera Labs as of June 30, up from 53 at the end of March. Lee Ainslie's Maverick Capital reported holding 1,067,215 shares, a 12% increase from the first quarter.

For Marvell Technology, the hedge fund count rose to 96 in the second quarter from 79 in the prior quarter. D. E. Shaw disclosed a position of 2,504,623 shares, a 658% sequential increase. The report notes that such large percentage changes can stem from a very small initial base, making the absolute share count more meaningful than the headline percentage change.

Regarding Astera, a snapshot of short interest reported by the exchange on August 14 showed 8,753,228 shares sold short, with 1.85 days to cover. This short interest had actually fallen 3.9% from the prior settlement period, which the source suggests weakens the argument that the stock's surge was driven primarily by a short squeeze. The fundamental distinction remains: Astera provides high operational use to the specific rack connectivity trend, while Marvell offers a wider array of products across the data center.