Astera Labs Benefits from the AI Boom

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According to a recent market report, the global Artificial Intelligence market is expected to grow 37% annually over the next few years to reach $2.75 trillion by 2032 from $177 billion in 2023. This is also propelling the growth of AI infrastructure companies. One such player is Astera Labs (NSDQ: ALAB) that listed recently and has seen its stock soar.

Astera Labs’ Offerings

Santa Clara-based Astera Labs was founded in 2017 by Casey Morrison, Jitendra Mohan, and Sanjay Gajendra. The co-founders were all working at Texas Instruments’s High Speed Interface business where they saw that the world was facing increasing connectivity bottlenecks due to growing computing demands. They decided to set up Astera primarily to address the growing connectivity challenges.

As the world is shifting towards cloud-based solutions from the traditional on-premise offerings, there has been an extensive demand for compute-intensive AI workloads. To address the performance and scalability requirements that come with the deployments of AI and other compute-intensive applications, hyperscalers have moved to heterogeneous system architectures within their data centers. These new system architectures require a significantly faster connectivity solution that comes with lower latency and promises cloud scale deployment. Building on this need, Astera has developed and deployed an Intelligent Connectivity Platform that has been built from the ground up for cloud and AI infrastructure.

Astera offers two key products: the Intelligent Connectivity Platform that comprises of semiconductor-based, high-speed, mixed-signal connectivity products that integrate a matrix of microcontrollers and sensors; and COSMOS, its software suite which is embedded in the connectivity products and integrated into its customers’ systems. The Intelligent Connectivity Platform provides its customers with the ability to deploy and operate high-performance cloud and AI infrastructure at scale. Its connectivity products are available in various form factors including ICs, boards, and modules. Astera estimates the total addressable market for its connectivity platform to be $17.2 billion. It anticipates this market to grow to $27.4 billion by 2027.

Astera Labs’ Financials

Astera has been seeing strong growth since its inception. More recently, revenue grew from $79.9 million in 2022 to $115.8 million in 2023. It has made significant investments in product development, and thus has been incurring net losses. It reported a net loss of $58.3 million in 2022 which reduced to $26.3 million in 2023.

The company was held privately all this while and had raised $206 million in funding from investors including Fidelity Management and Research, Atreides Management, Valor Equity Partners, Avigdor Willenz Group, GlobalLink1 Capital, Intel Capital, Sutter Hill Ventures, and VentureTech Alliance. Its last funding round was held in 2022 when it was valued at $3.1 billion. Earlier this year, Astera became one of the few small technology firms to list. It raised $712.8 million by selling 19.8 million shares priced at $36 each, valuing it at $5.2 billion. The stock has had a strong run since. It is currently trading at $43 with a market capitalization of $6.7 billion. It touched a high of $95.21 soon after trading but dropped to $36.22 amid the market turbulence earlier this month.

Astera should continue to benefit from the AI boom. There are many players in its space as well, with names like Cyan, Credo, Lattice Semiconductor offering similar technologies. But the market right now is big enough to accommodate these players.

Disclosure: All investors should make their own assessments based on their own research, informed interpretations, and risk appetite. This article expresses my own opinions based on my own research of product-market fit, channel execution, and other factors. My primary interest is in product strategy. While this may have bearing on stock movements, my writings tend to focus on long-term implications. The information presented is illustrative and educational, but should not be regarded as a complete analysis nor recommendation to buy or sell the securities mentioned herein. I am not a registered investment adviser and I am not receiving compensation for this article.

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Photo Credit: Michael Schwarzenberger from Pixabay