Astera Labs kicked off its journey as a public company with a share price of $52.56, marking a remarkable 46% increase at the opening bell. The company had priced its IPO at $36 per share, which was above its previously raised range. This debut is significant as it represents the first major technology offering of the year. Meanwhile, Reddit, the popular social media platform and AI data provider, is set to price its IPO after today’s market close, launching its own public journey tomorrow.
Astera Labs specializes in connectivity hardware for cloud computing data centers. With the increasing demand for AI, which requires extensive data transfer within data centers, Astera has seen a substantial rise in revenue. In 2022, the company generated $79.9 million, and by 2023, this figure soared 45% to $115.8 million.
Shares of Astera closed their first trading day at $62.03, reflecting a remarkable gain of 72%. While this impressive performance may draw criticism regarding potential mispricing and leaving money on the table, Astera’s successful market entry could inspire other private tech companies to pursue public listings after a prolonged period of subdued IPO activity.
Astera Labs’ IPO priced the company at approximately $5.5 billion, which escalates to about $8.9 billion at its current trading valuation. While fully diluted figures may be higher, the critical takeaway is that the company surpassed its final private valuation during its IPO and significantly exceeded it shortly thereafter.
A Silent Achiever
Although the excitement around Astera Labs' public offering has been less pronounced compared to Reddit's anticipated IPO, it may serve as a key indicator for market demand for AI stocks. While Reddit's AI-driven data business is certainly growing, it represents only a small fraction of its overall operations.
Conversely, the AI-driven expansion of data centers that is fueling Astera Labs’ growth likely constitutes a more substantial part of its current landscape and future potential. The acceleration of its growth rate in the fourth quarter of 2023, along with a shift from losses to GAAP profitability, emphasizes that Astera is positioned for success, largely due to rising AI demand, despite not engaging in high-profile foundational AI model work like OpenAI and its competitors.
“They’re not solely an AI company, but they’re definitely benefiting from that trend,” stated Nick Einhorn, vice president of research at Renaissance Capital, which tracks IPOs and manages public-offering-focused ETFs. Einhorn underscored that Astera’s revenue growth in the recent quarter serves as “the most compelling argument for them.”
Astera’s IPO will likely provide valuable insights into the performance of venture-backed companies in the public market this year. Unlike Reddit, which has a unique financial history involving acquisition and spinout, Astera Labs, founded in 2017, has secured $206 million in venture capital and was last valued at $3.1 billion. This positioning makes Astera a more comparable example for other companies of interest, such as Databricks, Stripe, and Plaid.
Looking Ahead to Reddit
The final closing price for Astera shares could send a positive signal to AI hardware companies and uplift the market for Reddit’s upcoming listing. Had Astera faced challenges initially, Reddit might have struggled even before its trading began.
Instead, Astera has experienced first-day trading results reminiscent of the high-flying debuts of 2021—could Reddit achieve similar success? Astera’s strong market performance may also rejuvenate investor interest that has been stifled, deterring some potential public offerings.Many late-stage startups may be hesitant to go public below their last primary valuation, even if founders are willing to do so at a lower price, due to venture capital deal structures involving dilution rights that could prevent such moves.
If venture capitalists recognize that startups like Astera Labs can thrive on the public market, they may reconsider their timelines for potential exit strategies.