Astera Labs’ IPO Surges by 72% on Debut: Evident Demand for AI-Infused Tech among Investors
Astera Labs began its journey as a publicly traded company with a share price of $52.56, showcasing an impressive 46% increase at the time the market opened. The firm had priced its initial public offering (IPO) at $36 per share the previous night, surpassing the proposed price range. Astera’s IPO marks the first significant tech offering monitored by TechCrunch this year. Renowned social forum and AI data source, Reddit, is set for pricing at the end of today’s trading session and is anticipated to commence its public journey the following day.
Astera Labs develops connectivity hardware applicable in cloud computing data centers. Given the immense data load required for AI, involving input, output, and internal data movement within data centers, Astera has witnessed a surge in recent revenues. Post generating $79.9 million in 2022, the revenue boosted 45% in 2023, amounting to $115.8 million.
By the end of the first trading day, the shares closed at $62.03, marking a 72% increase. Despite potential criticism that the firm might have been undervalued and missed out on potential revenues, its swift progress into the public market provides other private tech firms the confidence to list their own shares post a prolonged phase of reduced IPO activities.
The IPO pricing evaluated Astera Labs at approximately $5.5 billion, a value that has now expanded to nearly $8.9 billion based on the current trading price. Although fully diluted valuation figures present a higher value, what is significant for the company is that it managed to exceed its final private price through its IPO pricing, and further, it managed to surpass this number soon after.
Contrary to the relatively silent buzz regarding Astera Labs’ public offering when compared to Reddit’s IPO, it’s believed to be more indicative of the market’s demand for AI stocks. Even though Reddit’s AI-focused data business is expanding, it currently constitutes a small portion of its prospective operations for 2023, as per analysis by TechCrunch.
Differently, the AI-driven data center expansion benefiting Astera Labs forms what might be perceived as a larger portion of its prevailing size and future growth potential. Coupled with the company’s accelerated growth rate in 2023’s Q4 and its shift to GAAP profitability during that period, it’s clear that this company’s growth is propelled by AI demand. This development is irrespective of the fact it’s not directly involved in the headline-grabbing foundational model work carried out by OpenAI and similar organizations.
Nick Einhorn, Renaissance Capital’s VP of research, suggested that Astera’s profits from the AI trend despite not being an AI company. Renaissance Capital is an entity that monitors the IPO market and provides ETFs focused on public offerings. Einhorn also expressed that the most persuasive argument for Astera is the latest quarter’s revenue growth.
The performance of Astera’s debut will likely serve as a stronger indicator of how venture-backed IPOs will fare this year. Though Reddit also benefited from venture backing, its unique financial history – including acquisition and spinoff – makes it a less reliable comparison. Conversely, Astera Labs, established in 2017, has procured $206 million in venture capital and was last appraised at $3.1 billion, making it a more apt comparison for other companies on the watchlist, such as Databricks, Stripe, and Plaid.
The closing price of Astera shares could send a positive message towards AI hardware firms, and it might also be a good sign for Reddit’s upcoming IPO. If Astera had failed to make a strong start, Reddit may have been at a disadvantage even before its shares begin to trade.
However, Astera has shown that impressive first-day trading results in 2021 are achievable – a path that Reddit could potentially follow.
The initial success of Astera as a publicly traded company could potentially ease some of the hesitancy from investors that is currently stifling certain public offerings. As TechCrunch highlighted earlier in the week, some mature startups may be unable to go public at a price lower than their most recent primary valuation. This could be the case even if the founders are willing to enter the public markets at a reduced price. This is due to certain VC deal terms, including dilution rights, which allow investors to veto the transaction.
If venture capitalists realize that a startup could potentially make a big impact on the public market, like Astera Labs did, they might reconsider their timeline.
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