Intel Backed Astera Labs Goes Public: What Investors Need to Know

In 2020, Intel Capital, the global investment arm of Intel Corporation (INTC), made a significant move by unveiling a momentous investment initiative of $132 million. This injection of funds fueled the growth of 11 cutting-edge technology startups, each driving innovation in Artificial Intelligence (AI), autonomous computing, and chip design.

Among these 11 disruptive startups, Astera Labs, Inc. emerged as a key player, ready to redefine connectivity solutions and spearhead transformative industry shifts. Established in 2017, Astera quickly made waves in the semiconductor realm with its state-of-the-art connectivity solutions tailored for AI and cloud applications.

Notably, last year, the chip startup made a significant announcement regarding its entire product portfolio. The company revealed that its products are now equipped to fast-track cloud-scale workloads with unprecedented scaling capabilities.

This development comes at a time when the global cloud AI market is projected to experience substantial growth. It is estimated to reach $647.61 billion by 2030, growing at an impressive CAGR of 39.6% from 2023 to 2030.

Astera’s innovative approach to data center connectivity, bridging accelerators, CPUs, GPUs, memory, and networking, is proving vital in supporting the expansion of cloud infrastructure for AI and data-driven applications at scale.

Thad Omura, SVP of Business and Corporate Development at Astera Labs, underscored the prowess of the company's hardware-optimized PCIe, CXL, and Ethernet connectivity portfolio. He emphasized that these solutions have been meticulously crafted with a software-defined approach, enabling them to deliver unprecedented scale for AI infrastructure and cloud connectivity.

Moreover, encouraged by the prevailing AI frenzy, the chip startup recently announced its plans to transition into a publicly traded entity, set to trade under the ticker symbol “ALAB” on NASDAQ.

The company is gearing up to offer 17.80 million shares priced between $27 and $30 each, aiming to raise to $534 million. Following the completion of the deal, there will be 150.50 million outstanding shares, potentially valuing the company at $4.50 billion at the upper end of that range.

Morgan Stanley and J.P. Morgan have taken on the role of lead joint book runners for this Initial Public Offering (IPO). Additionally, Barclays, Deutsche Bank Securities, Evercore ISI, and Jefferies are also serving as book runners. Meanwhile, Needham & Company, Stifel, Craig-Hallum Capital Group, Roth Capital Partners, Loop Capital Markets, and Siebert Williams Shank have stepped in as co-managers.

The funds raised from this IPO will be allocated towards working capital and general corporate purposes, with the potential for utilization in acquisitions if suitable opportunities emerge. In a letter included in the filing papers, the three founders of Astera, Jitendra Mohan, Sanjay Gajendra, and Casey Morrison, share their unwavering commitment to the transformative power of AI.

The three founders kickstarted their venture in a garage. Their brainchild, Astera Labs, birthed three product families, each tackling crucial bottlenecks in AI infrastructure.

Aries, designed to enhance CPUs and GPUs, facilitates the scaling of data input/output bandwidth. Taurus focuses on providing AI servers with accelerated network bandwidth. Meanwhile, Leo enables the seamless scaling of memory bandwidth and capacity for CPUs and GPUs.

Astera projects its total addressable market (TAM) to skyrocket to nearly $27.40 billion by 2027, up from approximately $17.20 billion in 2023. In addition, the company boasts an impressive clientele, counting chip industry giants like INTC, NVIDIA Corporation (NVDA), and Advanced Micro Devices, Inc. (AMD).

Riding the wave of strong chip demand, the company witnessed a solid year-over-year topline growth in fiscal year 2023. In its Form S-1 filing, Astera reported revenue of $115.79 million, marking a robust 44.9% year-over-year growth. The company also saw a notable uptick in its gross profit, climbing to $79.83 million from $58.68 million the previous year.

On the other hand, as a result of making substantial investments in the design and development of new products and platform enhancements, the company remains unprofitable in 2023, incurring a net loss of $26.26 million and $0.71 per share. Yet, this reflects an improvement compared to fiscal year 2022, where the net loss was $58.35 million and $1.71 per share.

Bottom Line

Astera Labs has positioned itself as a frontrunner in the semiconductor industry, driven by its innovative connectivity solutions tailored for AI and cloud applications.

Backed by a significant investment initiative from INTC and boasting impressive financial growth, the company’s transition into a publicly traded entity signifies its confidence in its products and growth potential.

Furthermore, Astera’s IPO announcement arrives amid a perfect storm of opportunity. With the demand for semiconductor chips, especially those powering AI applications, soaring to new heights, the stage is set for Astera's ascent. For instance, NVDA’s stock has surged dramatically, seemingly unstoppable in its ascent.

Meanwhile, the shares of AMD and Taiwan Semiconductor Manufacturing Company Ltd. (TSM) have also witnessed significant rises, reflecting the broader trend of robust demand for semiconductor chips.

That said, with a strategic focus on addressing critical bottlenecks in AI infrastructure and a solid client base, including industry giants, Astera is well-poised to capitalize on the booming demand for semiconductor chips. Despite remaining unprofitable in fiscal year 2023, the company’s continuous investments in product development reflect its commitment to unlocking AI's full potential.

Moreover, the funds infusion from the IPO will provide Astera with a substantial financial boost, empowering the company to enhance its operational capabilities and drive strategic growth initiatives.

Overall, Astera’s IPO represents a significant milestone in its journey toward becoming a major player in the semiconductor landscape, with promising prospects for future growth and expansion. Keeping all these factors in mind, Astera emerges as a strong investment candidate.


Bypassing Qualcomm (QCOM) Turmoil: 3 Alternative Stocks to Add to Your Portfolio Now

QUALCOMM Incorporated (QCOM), valued at over $124 billion, specializes in wireless technology development, licensing, and smartphone chip design. The firm's key patents are focused on CDMA and OFDMA technologies, fundamental to all 3G, 4G, and 5G networks. As the world's principal wireless chips supplier, it furnishes high-end handset manufacturers with cutting-edge processors.

Canalys’ figures indicate the global smartphone market's persistent decline, marking its sixth consecutive quarter of reduction as of June 2023. Even while cautious optimism for a potential market resurgence remains, this downturn has tangible impacts on QCOM, a significant player in smartphone chip supply. The shrinkage, intensified by soaring competition from Chinese chipmakers, has notably impacted the firm’s revenue and profit margins last quarter.

The company experienced its sharpest stock dip in September, consequent to turmoil in China, which disrupted QCOM's sales in a critical market. The company faces manifold risks, amplified by the imminent wave of layoffs that has stirred public apprehension. The timing of this layoff news has coincided with persisting trade tensions between the U.S. and China and Beijing's enactment of a partial ban on using iPhones by government personnel.

According to recent filings with the California Employment Development Department, the semiconductor behemoth will eliminate approximately 1,258 jobs in San Diego and Santa Clara, California, to accommodate dwindling demand for its primary product.

The layoffs are a part of “restructuring actionsaimed at channeling resources towards “investments in key growth and diversification opportunities.” Although the loss of 1,258 employees will be felt, this figure represents less than 2.5% of QCOM's total workforce of 51,000 employees.

Concurrent with these measures, the company anticipates incurring substantial additional restructuring charges, most of which are expected to be borne in the fourth quarter of fiscal 2023. The company forecasts the successful completion of these additional actions by the first half of fiscal 2024.

Impact of the Layoffs

Potential layoffs at QCOM could be a strategic move to mitigate operating costs and bolster profitability and cash flow. This action can amplify the company's earnings per share and future dividend payouts and refocus its direction toward the core business and strategically significant growth sectors such as 5G technology, automotive tech, and IoT.

The latest data suggests that over 750 members of QCOM's workforce facing possible layoffs belong to engineering cadres, with positions ranging from directors to technicians. The remaining reductions will impact various roles, encompassing accounting and internal technical staff.

These substantial reductions in the workforce might slow down QCOM's manufacturing capacity, along with their research and development activities, which could stifle innovation in the long term. This scenario could pave the way for QCOM's competitors in the microchip manufacturing industry to seize a higher market share by providing more competitive products and services.

Given QCOM's ongoing challenges, investors may watch fundamentally sound stocks Apple Inc. (AAPL), Advanced Micro Devices, Inc. (AMD), and Intel Corporation (INTC).

Let’s discuss these stocks in detail.

Apple Inc. (AAPL)

Tech giant AAPL has continuously enhanced its capabilities by designing custom chips for hallmark products such as iPhones, iPads, and iPods over many years. The initiative to design these crucial components in-house significantly boosts the overall device performance and optimizes power efficiency.

To strive for a self-reliant development strategy, AAPL has gilded significant resources to produce its modem chips to reduce dependence on external suppliers like QCOM. However, the mission is yet to be fully accomplished.

AAPL has been integrating QCOM's and home-grown chips in the technology behind its flagship iPhones. Despite intense challenges faced by AAPL's ambitious Sinope project, which has yet to result in a standalone ability to produce a 5G modem chip, the spirit of innovation and the quest for excellence remains unscathed within the company.

This ambivalent situation was recently accentuated when AAPL extended its contract with QCOM to supply '5G modem chips', a deal set to last through 2026.

Indeed, developing a standalone 5G modem chip is arduous, though certainly not beyond the realms of possibility. With resilience and commitment to navigating challenges, it is undoubtedly just a matter of time before AAPL actualizes its dream of rolling out its home-grown 5G modem.

Considering AAPL's staunch determination and its record of technological advancements, realizing this ambitious objective seems attainable. It’s plausible that we might witness the introduction of AAPL’s modem even before the ongoing QCOM deal concludes in 2026.

Shares of AAPL have gained over 35% year-to-date. Wall Street analysts expect the stock to reach $207.51 in the upcoming 12 months, indicating a potential upside of 18.3%. The price target ranges from a low of $167 to a high of $240.

Advanced Micro Devices, Inc. (AMD)

Semiconductor giant AMD, which currently boasts a market cap of over $165 billion, is strategically positioned to meet the potential demands spurred by chip shortages that may result from QCOM’s proactive cost-cutting strategy.

Recovering convincingly from being on the verge of bankruptcy, AMD has seen its stock value increase from a dismal $3 per share. The remarkable turnaround can be attributed to the flourishing success of its Ryzen line of central processing units (CPU), launched in 2017.

Now, AMD sets its sights on the lucrative AI market, unveiling the latest iteration of its MI300 chips, which the company hails as its most powerful GPU. As the market yearns for fiercer competition, the new chip, set to commence shipping in 2024, feeds this demand.

Over the past three and five years, its revenue increased at 42% and 28.2% CAGRs, while its levered free cash flow grew at CAGRs of 83.7% and 103.7% over the same periods. AMD has massive potential over the long term, making its stock worthy to be monitored.

Shares of AMD have gained over 58% year-to-date. Wall Street analysts expect the stock to reach $137.48 in the upcoming 12 months, indicating a potential upside of 34.3%. The price target ranges from a low of $95 to a high of $160.

Intel Corporation (INTC)

QCOM leads in the Android industry but faces stiff competition from chipmaker INTC in the PC market.

With a commendable market cap of over $150 billion, INTC plans to capitalize on the burgeoning AI market and presented a strategic vision last month to position itself as a pivotal architect of AI-integrated personal computers.

INTC recently debuted its glass substrates, designed to give the advanced packaging of chips a significant edge over traditional substrates. The innovation is expected to have positively impacted revenues in the third quarter.

In the same period, a critical alliance was formed between INTC and Tower Semiconductor Ltd., which could significantly impact the broader semiconductor ecosystem. The alliance showcases INTC's unwavering commitment to broadening its foundry services and manufacturing prowess.

Moreover, a significant breakthrough came when Ericsson chose INTC's 18A process and manufacturing technology to advance its next-generation 5G network. INTC was enlisted to produce custom 5G SoCs for Ericsson, projected to have fortified the company's top line in the third quarter.

Shares of INTC have gained over 34% year-to-date. Wall Street analysts expect the stock to reach $36.67 in the upcoming 12 months, indicating a potential upside of 2.8%. The price target ranges from a low of $17 to a high of $56.