Astera Labs' stock soars, as investors cheer the debut of a new AI chip play

By Emily Bary

Stock closes up 72% from IPO price

Astera Labs got a warm reception in its Wall Street debut Wednesday, giving investors yet another hot chip play to consider.

The first trade of Astera Labs' stock (ALAB) was at 12:39 p.m. Eastern for 2.6 million shares at $52.56, or 46% above its $36 initial-public-offering price. Shares ended the day at $62.03, up 72% from the IPO price.

With about 152.5 million shares outstanding after the IPO, the opening price implies a market capitalization for Astera of about $9.6 billion

The connectivity-focused semiconductor company, which raised $713 million in its IPO, debuted on the Nasdaq under the ticker symbol "ALAB."

Astera Labs plays into the artificial-intelligence craze through its work in chip connectivity. There's been a proliferation of AI chips recently, but Astera Labs says customers won't be able to get the most out of them without technology that helps AI chips connect and communicate with other aspects of a data center.

"Processors do a phenomenal job with computational functions," President Sanjay Gajendra told MarketWatch, but Astera Labs' products help them interconnect.

Chief Executive Jitendra Mohan said that the AI work processors are trying to do in data centers is akin to a marathon run at sprint speed, which can be tiring. Astera Labs' technology tries to convert that marathon into a relay race, he said, with processors sending signals to Astera Labs products that enable data-center components to talk with one another.

The company remains unprofitable, though its $26.3 million net loss during 2023 was about half of the $58.3 million loss that the company logged a year before. Revenue for 2023 rose to $115.8 million from $79.9 million.

The company has been reducing its revenue concentration from its largest customers, though the top three made up about 70% of the company's sales last year.

Because Astera Labs sells to larger hyperscaler customers, its revenue is naturally concentrated, according to Mohan, but he noted that the company sells multiple products to those customers. Meanwhile, it's perhaps "less known" that the company sells to original equipment manufacturers, he added.

Mohan, Gajendra and Casey Morrison launched the business in a garage, and the three of them continue to hold operational roles at Astera Labs, with Morrison serving as chief product officer.

He flagged the diversity of the company's product offerings, which include Aries for extending connectivity between processors, Taurus for extending servers and switches over ethernet and Leo for expanding memory access.

Chip stocks have gotten a nice boost recently, with the PHLX Semiconductor Index SOX up about 51% over the past 12 months.

Gajendra said the company opted to go public now because AI is "everywhere," and Astera Labs has big aims. It aspires to be "the next big leader in AI and computing," he said.

The company will use its IPO proceeds in part to accelerate development and grow its staff.

-Emily Bary

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03-20-24 1704ET

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