What is Astera Labs?

And why does it matter?

Hey Everyone,

Today something a bit different. As I cover emerging tech, it’s impossible for me not to notice and talk about Astera Labs, ALAB 0.00%↑.

Astera Labs is the most recent IPO to go live on the stock market that deals with the AI semiconductor industry. It’s as fascinating use case. It was up 72% on its first day of trading on March 20th, 2024.

It’s also reflective of the appetite for AI stocks in the semiconductor industry. The company basically specializes in and sells data center connectivity chips to cloud and AI infrastructure companies. The datacenter business is likely to be favorable in the years ahead.

The company priced its IPO above its previous target range of $32 to $34 apiece, giving it a valuation of about $5.5 billion based on the outstanding shares listed in its filings with the U.S. Securities and Exchange Commission. However the market felt it was worth more than that, a lot more.

Its CEO is Jitendra Mohan. The IPO market has been so quiet the last few years but here is the perfect environment for Astera Labs. Astera is seeing real growth however in its core business and value proposition:

Astera Labs makes connectivity hardware for cloud computing data centers. Because AI requires massive amounts of data moving into, out of and around data centers, Astera has seen recent revenues bloom. After generating $79.9 million in 2022, revenue swelled 45% in 2023 to $115.8 million.

What can we learn from this? Astera Labs priced its IPO at $36 per share. It will open today at $62. I guess the bull market for AI related stocks is still here. To be frank, the tech IPO market has been largely dormant since late 2021, so it’s been a long break till 2024.

Symptoms of the AI Bull Market in 2024

In 2023 companies began to mention “AI” a lot more in their earnings calls. Astera was no exception to this. With 271 mentions of “AI” in its most recent SEC filing, the company is working hard to convince investors that it’s part of the larger artificial intelligence boom.

Their trading began yesterday, Nasdaq Global Select Market under the the ticker symbol "ALAB" on March 20, Astera Labs said. ALAB 0.00%↑ But are they really worth well over $5 Billion? Time will tell.

How many AI infrastructure stocks are there out there? When you look at what some AI related semiconductor stocks have done in tandem with Nvidia, it’s a pretty long list of names. The stock market fuels R&D in AI so it’s important to keep tabs on if you are watching emerging tech as whole like I am.

That’s why I started the Newsletter: Emerging Tech Investments.

While the song and dance surrounding Astera Labs’ public offering has been noticeably quieter than bigger names IPO-ing this week like Reddit, it’s a much more compelling story.

With Products named Aries, Taurus and Leo - we’re off to a the bull-run.

The presumed valuation now stands at $9.46 Billion, which seems like a big increase overnight.

Astera Labs isn’t glamorous though, they build PCIe, CXL and Ethernet semiconductor-based connectivity solutions are purpose-built to unleash the full potential of cloud and AI infrastructure. Inspired by trusted partnerships with hyperscalers and the data center ecosystem, they are an innovation leader of products that are customizable, interoperable, and reliable.

So in many ways this is a working class type of foundational datacenter stocks, more to do with the Cloud than with AI directly.

This is a difficult market and Astera is paying for its growth and the losses are not pretty. On its 2022 $79.9 million in revenue, it posted a net loss of $58.3 million; on its 2023 $115.8 million in revenue, net loss tallied $26.3 million.

• In the third quarter of 2023, Astera Labs’ revenue began growing dramatically: from $10.7 million in Q2 2023 to $36.9 million in Q3, and $50.5 million in Q4.

It’s a fairly risky stock actually since it’s not profitable on the whole, with in 2023, its biggest three customers represented about 70% of its revenue, Astera disclosed. You really have to read the fine print in a tech IPO.

Astera Labs has seriously caught a wave thanks to AI data center spending at the right time at the month of its IPO, fortunate and lucky to be sure. Nothing to warrant going up 70% on its first day trading though.

Astera provides Plug-and-play PCIe and CXL interoperability is critical for systems running data-intensive workloads in the cloud. You’d think that would be great, but it’s actually a fairly tough business. Fortunately the AI-led data center buildout that is benefiting Astera Labs makes up what the market may consider a larger portion of its current size, and future growth. The headwinds are favorable on the whole.

However with every manfactured boom of the markets, there’s always a lot of hype and market sentiment clouding the reality on the ground. The listing comes at a time when growing popularity of AI and its influence across various sectors has been driving a rally in technology firms, propelling stocks of companies such as Nvidia to record highs.

Astara makes by the way semiconductor based products. It’s a Cloud infrastructure play, to call it an AI stock I don’t think is even technically correct.

IPO day one in Video

The boost in day 1 is also due to Amazon or a strange deal with them. Amazon is set to benefit from the buzzy IPO after signing warrant agreements that allow it to buy about 2.3 million shares of Astera, CNBC reported.

Aries Product

“They’re not an AI company. But they’re certainly, I think, benefiting from that trend,” said Nick Einhorn, vice president of research at Renaissance Capital, a company that tracks the IPO market and offers public-offering focused ETFs. Einhorn added that Astera’s most recent quarter of revenue growth is “the most compelling argument for them.”

For every company the claims its an AI play, most of them are actually not and it’s important learning when you read the PR, marketing and stock analyst on different names. Most Genitive AI startups won’t ever build products that will even be profitable. And most companies claiming to be AI companies, won’t even be that related to it.

Aster Labs is yet another important company that teaches us about the deception at the heart of the American system of markets, marketing, PR, IPOs and buzzy tech trends where sentiment is designed to be inflated in comparison to the reality.