The artificial intelligence (AI) hype train kept rolling as the IPO of Astera Labs (NASDAQ:ALAB) popped over 70% after its opening on March 20.
Astera offers what it calls connectivity chips for cloud and AI infrastructure. They aim to speed the transfer of data within server racks, using industry standards like Ethernet.
ALAB was offered at $36 but finished March 20 at $62.03, a gain of 72%. It gained another 7% overnight and was expected to open this morning at a little over $66. That’s a market capitalization of $9.8 billion on 2023 sales of under $116 million.
The Amazon Connection
The Astera IPO was boosted by a crucial connection to Cloud Czar Amazon (NASDAQ:AMZN).
That is a 2022 agreement in which Amazon bought warrants to buy 1.5 million shares of Astera at $20.34. Another 830,000 warrants were added in 2023. The kicker is that for Amazon to exercise the warrants, it must buy $650 million in Astera equipment.
Astera was founded in 2018 by former Texas Instruments (NYSE:TXN) executives. Nvidia (NASDAQ:NVDA), Advanced Micro Devices (NASDAQ:AMD) and Intel (NASDAQ:INTC) are all on the customer list. Its three biggest customers are Cloud Czars who represented 70% of sales last year. The company is counting on Original Equipment Manufacturers (OEMs) to expand the customer base.
Astera names its products for astrological signs. Aries extends connectivity between processors. Taurus extends servers and switches over Ethernet. Leo expands access to memory.
Astera’s main competitors are designs based on ARM Holdings (NASDAQ:ARM), the Mellanox unit of Nvidia’s data fabric, and other fabless startups in the data connectivity space.
ALAB Stock: What Happens Next?
Expect a lot more AI IPOs as companies recognize the opportunity of the public markets and their need for more capital. This train is just getting started, and they’ll party until it’s 1999, at least in AI terms.
As of this writing, Dana Blankenhorn had LONG positions in INTC, AMZN, and NVDA. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
