Can Astera's IPO Succeed?

A Ichip

By: Mary Jander

Networking infrastructure for AI begins at the component level – where competition and market activity is heating up. In the spotlight recently are products that purport to save power and improve overall performance in AI networking by addressing the connections that link chips and switches within AI servers.

Evidence of the momentum in this area can be found in recent news of the initial public offering (IPO) proposed by Astera Labs, which released its latest S1/A form with the U.S. Securities and Exchange Commission (SEC) on March 6. The company plans to raise up to $534 million on a reported valuation of $4.5 billion.

Astera specializes in integrated circuits designed specifically for cloud and AI infrastructure. Its prospectus states:

“The bottleneck for AI deployments in the cloud has shifted from computing performance to connectivity. We believe a new approach for connectivity is required to address the data, network, and memory bottlenecks in a reliable, scalable, customizable, and interoperable manner for cloud and AI infrastructure.”

Astera offers three groups of products: Its Aries PCIe/CXL Smart DSP Retimers shorten the distance between CPUs, DPUs, storage, and other elements in AI environments by retransmitting physical-layer signals, improving overall link performance. The Aries line is based on Peripheral Component Interconnect Express (PCIe), a standard technique for linking CPUs to other components, including storage. CXL stands 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 Astera product line, Taurus Ethernet Smart Cable Modules, improves connectivity between components in AI networks linked by copper cabling. A third line of Leo CXL Memory Connectivity Controllers perform, in Astera’s words, “expanding, sharing, and pooling of industry standard DRAM memory over high-speed serial links to support memory-intensive workloads running on AI accelerators and CPUs.” Whew!

Astera Labs was founded in Santa Clara, Calif., in 2017 by three former colleagues at Texas instruments: Jitendra Mohan, now CEO; Sanjay Gajendra, now COO; and Casey Morrison (now chief product officer). The company has roughly 265 employees. It has scored about $235 million in funding. The last Series D round was led by Fidelity Management and Research with participation from Atreides Management, Intel Capital, and Sutter Hill Ventures.

Astera founders (left to right): Sanjay Gajendra, Jitendra Mohan, Casey Morrison. Source: Astera Labs

A Bold Move, or Folly?

Astera’s move toward IPO is a bold one. For one thing, 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). And its net loss compared favorably to last year’s – 2023’s net loss was down over 55% from 2022’s $58 million.

But Astera faces fierce competition from Broadcom, Marvell, and other public companies offering interconnections for AI infrastructure components. Broadcom, for instance, recently released its own PCIe retimers, claiming “the world’s first 5nm PCIe Gen 5.0/CXL2.0 and PCIe Gen 6.0/CXL3.1 retimers.” Other vendors offer proprietary interconnects for AI components that are tough to beat. NVIDIA, for instance, offers its proprietary NVLink and NVSwitch connectivity; AMD offers Infinity Fabric. Given that NVIDIA dominates the market for AI chips, its proprietary interconnect technologies are highly competitive.

On the plus side, Astera claims to be shipping its products to “all major hyperscalers and AI platform providers.” Still, in the obligatory risk factors list in its prospectus, Astera acknowledges its dependence on just a few key customers:

“We recognized … an aggregate of approximately 89% of our revenue from our top three end customers for the year ended December 31, 2022. In 2022, a majority of our revenue was derived from one end customer. In 2023, no end customer represented more than one third of our revenue; the top three end customers represented an aggregate of approximately 70%, of our revenue.”

A Growing Market

In its favor, Astera’s competing in a hot market. Its prospectus states:

“We believe that our Intelligent Connectivity Platform addresses a large and growing TAM of $17.2 billion. Specifically, our technology and product portfolios target the global wired connectivity market, including PCIe and Ethernet, and the CXL memory connectivity controller market. We believe that our TAM will grow to $27.4 billion by 2027.”

Still, it's a David-and-Goliath scenario, given that Broadcom alone posted $35.8 billion in revenue for 2023, which according to CEO Hock Tan was “driven by investments in accelerators and network connectivity for AI by hyperscalers.” That comment, though, indicates that Astera’s competing in a market that is strong and growing. Astera's IPO will test that strength, which just might float Astera's boat.