Astera Labs Blockbuster IPO Reveals Strong AI Market

Astera Labs (Nasdaq: ALAB) exceeded expectations in its March 20th IPO, raising $713 million, more than 33% over the $534 million it first anticipated. The company’s future looks bright as it hops on the AI infrastructure supply train, but Astera will have to move forward far and fast to sustain its success.

While much of the tech world joined Jensen Huang at NVIDIA’s GTC conference in San Jose or checked out the latest in cloud-native development at KubeCon in Paris, Astera was toting up a market cap of more than $9 billion. According to Bloomberg, It was the biggest public market debut since 2021 for a US IPO of $500 million or more.

The IPO’s success speaks to the strength of the market for the components underlying the powerful GPU-driven AI clusters supporting training and inference of generative AI (GenAI) applications.

Astera, founded in 2017 by three former colleagues at Texas instruments, makes elements called retimers that shorten the distance between CPUs, DPUs, storage, and other elements in AI environments by retransmitting physical-layer signals, improving overall link performance.

One line of Astera products is based on Peripheral Component Interconnect Express (PCIe), a standard technique for linking CPUs to other components, including storage, and on CXL, short for Compute Express Link, an open standard based on PCIe that governs memory between a CPU and attached devices, including SmartNICs and accelerator chips.

A second product line improves connectivity between components in AI networks linked by copper cabling. And a third line boosts memory sharing over links that support memory-intensive workloads running on AI accelerators and CPUs.

A Big Fat TAM

Astera’s hit a growing market populated by the top names in AI components, including AMD (Nasdaq: AMD), Broadcom (Nasdaq: AVGO), Marvell (Nasdaq: MRVL), and NVIDIA (Nasdaq: NVDA) – as well as Intel (Nasdaq: INTC), which has invested in Astera. In its prospectus prior to the IPO, the company stated its total addressable market (TAM) to be $17.2 billion. Astera thinks that will grow to $27.4 billion by 2027, driven by the already sizable growth of the AI infrastructure market.

Indeed, Astera CEO Jitendra Mohan told Bloomberg that the IPO proceeds will go toward hiring another 200 engineers, perhaps by acquiring whole startups with ready-made batallions. “We have a huge opportunity in front of us, and not enough people to do it,” Mohan told Bloomberg.

Astera Needs Profitability

Growing the company will be essential to Astera’s future success, given the strong market incumbents. And Astera isn’t a profitable company. For the year ended December 31, 2023, it reported a net loss of $26 million. Still, the firm reported $116 million in revenues for 2023, up 45% year-over-year (y/y).

But given today’s market capitalization of $10.912 billion, those revenues signal a price/sales ratio of about 94X, which is clearly unsustainable. It will be interesting to see how big the company can grow within a short timeframe. M&A could very well be the best choice.

As of this writing Astera shares were trading at $72, -2.19 (2.95%).