Astera Labs began life as a public company trading at $52.56 per share, up 46% at the bell. The company, which provides “semiconductor-based connectivity solutions that are transforming the future of artificial intelligence,” priced its IPO last night at $36 a share, above its elevated price range. Astera’s debut marks the first materials technology offering TechCrunch is tracking this year. Reddit, the well-known social forum and AI data provider, is expected to price after the close of trading today and start its own public saga tomorrow.
Since trading began, Astera shares have continued to climb, reaching $55.73 at press time, a gain of about 54%. While the company’s strong early trading will certainly prompt criticism that it was mispriced and that the company left money on the table, its rise to public life may help other private market tech companies find the courage to list their own shares after a long period of limited IPO activity.
Astera Labs’ IPO price valued it at about $5.5 billion, which swells to about $8.9 billion at its current trading price. The fully diluted valuation figures are higher, but what matters for the company is that it exceeded its final private price at the IPO pricing, and then crashed past that price soon after.
A quiet winner
While the song and dance surrounding Astera Labs’ IPO has been noticeably quieter than that surrounding Reddit’s IPO, there’s reason to believe it’s more a test of market demand for AI stocks than its debut of Reddit. While Reddit’s AI-driven data business is certainly a growing part of its business, it remains a single-digit percentage of its expected 2023 per TechCrunch analysis.
Instead, the creation of AI-led data centers benefiting Astera Labs is what the market can see as a major part of its current size and future growth. The fact that the company’s growth rate accelerated as much as in the fourth quarter of 2023 and that it managed to turn from loss to GAAP profitability in that quarter underscores the view that it is a company on the move thanks to AI demand. This, despite being a far cry from the more title-friendly foundation model that OpenAI and its competitors are taking on.
“It’s not an AI company. But I definitely think they’re benefiting from this trend,” said Nick Einhorn, vice president of research at Renaissance Capital, a firm that tracks the IPO market and offers ETFs focused on public offerings. “And I think when you look at the revenue growth, it’s really the most recent quarter is, I think, the most compelling argument for them.”
Astera’s debut will also likely prove to be a better indicator of the performance of venture-backed IPOs this year. Although Reddit has also been venture-backed, it has a somewhat unique financial past that includes acquisitions and break-ups. On the other hand, Astera Lab, founded in 2017, has raised $206 million in venture capital and was last valued at $3.1 billion, making it a better benchmark for the other names people are watching, including Databricks, Stripes and Plaids.
Reddit is next
The final closing price for Astera shares could send a positive message for AI hardware companies, but it may also heat up the IPO waters for Reddit’s own listing. Had Asteras stumbled out of the gate, Reddit might have been hurt before it even started trading.
Instead, Astera presents first day trading results of the 2021 era — perhaps Reddit can follow?
Astera’s strong performance in its first few hours as a public company could also improve some investment activity that is delaying or even preventing some public offerings altogether. As TechCrunch reported earlier this week, some late-stage startups may not be able to go public below their last major valuation — even if the founders are okay with going public at a lower price – due to the terms of the VC agreement on the table bets, including impaired rights that would have given investors the ability to block the deal.
If VCs know that the startup could go public like Astera Labs, they might think differently about the timing.
