The litmus test of the AI boom: AI hardware concept stock Astera Labs priced its IPO at $36 per share on Wednesday

Author: Zhao Yuhe

Source: Hard AI

As the tech world eagerly awaits Reddit's public offering, semiconductor startup Astera Labs, known as the "Little Nvidia", has already conducted its IPO on Wednesday, with a price of $36 per share. Analysts believe that as the first "AI unicorn" to go public, the company may serve as a litmus test for investors' renewed interest in tech IPOs.

Astera announced this week in a public filing that its IPO will be larger than initially planned in all aspects, with the number of shares to be listed increasing from the original 17.8 million to 19.8 million, and the expected midpoint of fundraising rising from the previous estimate of $392.4 million to $517.6 million. On Wednesday, the company set the IPO price at $36 per share, which has been raised twice, with the previous expected ranges being $27 to $30 and $32 to $34. As of Wednesday's midday, the stock had not yet started trading.

Unlike social media company Reddit, which owns AI data, Astera Labs focuses on AI hardware and is not challenging chip giant Nvidia. Astera primarily manufactures connectivity hardware for cloud computing data centers. Due to the need for AI to move large amounts of data inside, outside, and around data centers, Astera's recent revenue has surged. After reaching $79.9 million in revenue in 2022, revenue in 2023 increased by 45% to $1.158 billion.

The company mentioned "AI" 271 times in its IPO application submitted to the SEC, indicating that they are trying to convince investors that they are part of a larger AI trend.

However, analysts believe that the extent of Astera's AI potential for long-term success is still debatable. Some analysts say that Astera is "not an AI company" but does benefit "from the AI trend", especially driven by AI-powered data center spending. In 2022, Amazon signed an agreement to purchase nearly 1.5 million shares at a price of $20.34 per share, well below the IPO price. In return, Amazon will complete up to $650 million in business transactions with Astera over a seven-year agreement period starting in 2022.

Nevertheless, while the company's AI narrative is still unfolding, its recent rapid growth and early profitability may be key drivers of interest from public market investors.

Generally, in the startup field, growth and losses often go hand in hand. Startups raise funds from private market investors and invest the funds in operations to expand their workforce, thereby building and selling faster. Typically, when a startup reaches the required scale for an initial public offering, it often remains in a loss-making state and begins to generate adjusted profits in the near future, let alone profits based on stricter accounting standards Until the fourth quarter of 2023, Astera Labs seems to be such a company. Last year, its business grew rapidly, but losses also increased accordingly.

The company had a revenue of $79.9 million in 2022, with a net loss of $58.3 million; in 2023, the revenue reached $115.8 million, with a net loss of $26.3 million. Even after adjusting for non-cash costs of paying its workers with stock, the company's adjusted profit in 2023 remained negative.

However, upon closer examination, it can be seen that the company's finances are making slight progress. In the third quarter of 2023, Astera Labs saw a significant increase in revenue: from $10.7 million in the second quarter of 2023 to $36.9 million in the third quarter, and $50.5 million in the fourth quarter.

This soaring growth itself is impressive, and the company's profit prospects improved sharply at the end of 2023. After announcing a net loss of $20 million in the second quarter of 2023, the net loss disappeared in the third quarter, leaving only $3.1 million. By the fourth quarter, Astera Labs turned profitable with a net income of $14.3 million.

However, analysts warn that the results in the fourth quarter of 2023 may not indicate a new normal for the company. "One challenge for such companies is the high concentration of customers and the potentially very unstable customer purchasing patterns," so a strong performance in the recent quarter does not always mean it will be repeated in future quarters. For example, the company previously disclosed that its top three customers accounted for about 70% of its revenue in 2023.

Analysts believe that if the company can perform strongly after its first trading day, it may open the IPO door for other companies experiencing growth due to AI, perhaps enough to see more tech companies emerge this year.