Astera Labs’ IPO pops 54%, showing that investor demand for tech with an AI-twist is high

Astera Labs started its life as a public company trading at $52.56 per share, up 46% when the bell rang. The company priced its IPO last night at $36 per share, above its raised price range. Astera’s debut marks the first material technology offering this year that TechCrunch is tracking. Reddit, the well-known social forum and AI data provider, is expected to price after the close of trading today and begin its own public saga tomorrow.

Astera Labs makes connectivity hardware for cloud computing data centers. Because AI requires massive amounts of data moving into, out of and around data centers, Astera has seen recent revenues bloom. After generating $79.9 million in 2022, revenue swelled 45% in 2023 to $115.8 million.

Shares closed on their first day of trading at $62.03, a gain of 72%. While the company’s strong early trading will certainly engender critiques that it was mispriced, and that the company left money on the table, its bull-rush into 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 around $5.5 billion, a figure that swells to around $8.9 billion at its current trading price. Fully diluted valuation figures are higher, but what matters for the company is that it bested its final private price in its IPO pricing, and then trounced the latter figure immediately after.

A quiet winner

While the song and dance surrounding Astera Labs’ public offering has been noticeably quieter than that surrounding Reddit’s IPO, there’s reason to believe that it is more a test of the market’s demand for AI shares than Reddit’s own debut; while Reddit’s AI-based data business is certainly a growing portion of its operations, it remains a single-digit percentage of its anticipated 2023 per TechCrunch analysis.

In contrast, the AI-led data center buildout that is benefiting Astera Labs makes up what the market may consider a larger portion of its current size, and future growth. The fact that the company’s growth rate accelerated as much as it did in the fourth quarter of 2023 and that it managed to swing from a loss to GAAP profitability that quarter underscores the view that it is a company on the move thanks to AI demand. This even though it sits far from the more headline-friendly foundation model work that OpenAI and its rivals are undertaking.

“They’re not an AI company. But they’re certainly, I think, benefiting from that trend,” said Nick Einhorn, vice president of research at Renaissance Capital, a company that tracks the IPO market and offers public-offering focused ETFs. Einhorn added that Astera’s most recent quarter of revenue growth is “the most compelling argument for them.”

Astera’s debut will also likely prove a better gauge for how venture-backed IPOs will perform this year. While Reddit was also venture-backed, it has a bit of unique financial past that includes being acquired and spun out. Astera Lab on the other hand, founded in 2017, has raised $206 million in venture capital, and was last valued at $3.1 billion which makes it a better comp for the other names people are keeping an eye on including Databricks, Stripe and Plaid.

Reddit’s up next

The final closing price for Astera shares could provide a positive signal for AI hardware companies, but may also warm the IPO waters for Reddit’s own listing. Had Astera stumbled out of the gate, Reddit might have found itself wounded before it even began to trade.

Instead, Astera is putting up 2021-era first-day trading results — perhaps Reddit can follow?

The strong performance of Astera in its first hours as a public company could also ameliorate some investor activity that is holding back, 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 primary valuation — even if there founders are ok with hitting the public markets at a lower price — due to table stakes VC deal terms including dilution rights which would give investors the ability to block the deal.

If VCs know that the startup could pop on the public market like Astera Labs, maybe they will think about the timeline differently.