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Astera’s Market Debut Skyrockets 72% – Amazon in Prime Position with 2.3 Million Share Deal

Last Updated March 21, 2024 1:36 PM
Giuseppe Ciccomascolo
Last Updated March 21, 2024 1:36 PM

Key Takeaways

  • Astera Labs’ stock price surged over 72% on its first day of trading.
  • This strong debut highlights investor confidence in the company’s future and the potential of the AI sector.
  • Amazon is one of the biggest winners here.

Astera Labs Inc.  stock surged by an impressive 72% during its trading debut following a highly successful initial public offering (IPO) that exceeded expectations. The company raised a remarkable $713 million during the pre-listing offer, being the fourth largest IPO this year so far.

This substantial performance not only amplifies the momentum of artificial intelligence (AI) related stocks. But it also signals a resurgence in listings within the semiconductor connectivity sector. And Amazon is one of the biggest winner here.

Astera Impressive Debut

Shares of Astera, initially priced at $36 each in the IPO, surged as much as 76%  on Wednesday, March 20, 2024, before settling at $62.03 by close, marking a significant uptick for the Santa Clara, California-based company and resulting in a market value of $9.46 billion. With stock options and restricted share units factored in, Astera boasts a fully diluted value of $10.4 billion.

This first-day surge stands as the most substantial for a US IPO of $500 million or more since June 2021, when Kanzhun  experienced an increase of almost 96% from its IPO price.

Astera, along with its investors, priced the shares above the target range of $32 to $34. Backed by notable entities like Intel and Sutter Hill Ventures, the company expanded the marketed range and augmented the sale to include 19.8 million shares.

Astera Labs stock performance
Astera Labs stock surged on the first trading day. l Source: MarketWatch

Jitendra Mohan, co-founder and CEO of Astera, disclosed in an interview  that the funds procured from the IPO will facilitate the hiring of 200 additional engineers. Furthermore, the company is contemplating mergers and acquisitions as a strategy to acquire complete engineering teams.

Founded in 2017, Astera specializes in semiconductor-based connectivity solutions, with a focus on integrating AI and machine learning into cloud computing. In 2022, a funding round led by Fidelity Management & Research raised $150 million, boosting Astera’s valuation to $3.15 billion.

Amazon Took Huge Benefit

Among the notable investors in the company is Intel’s venture arm. But Sutter Hill Ventures emerges as its principal shareholder, holding a significant 12.6% stake in the company. Fidelity-affiliated funds also hold a notable 6.4% stake.

According to filings, Jitendra Mohan, one of the founders, possesses 6.1% of the company’s shares. Sanjay Gajendra, the Chief Operating Officer and co-founder, holds a 5% stake.

However, Amazon is a major beneficiary of Astera’s remarkable ascent. The tech giant expressed its confidence in Astera in 2022 by striking a deal that granted it warrants to acquire up to 1.5 million shares of Astera at $20.34 per share. Subsequently, the agreement was amended in the following year, granting Amazon warrants for over 830,000 additional shares. By the end of the previous year, Amazon held 232,608 shares.

Based on the closing price on Wednesday, the value of Amazon’s shares and warrants totals nearly $144 million. However, for Amazon to realize the full benefit of the price surge, it must purchase up to $650 million worth of Astera’s products in the forthcoming years. This represents a substantial commitment for Astera, whose total sales last year amounted to $115.8 million, up from $79.9 million in 2022.

Astera’s IPO prospectus indicates that the three categories of products Amazon has agreed to procure are all tailored to address critical bottlenecks in AI infrastructure.

What’s Next?

In addition to expanding its engineering team, Mohan emphasized  the pivotal role Astera plays in the AI ecosystem. He described its mission as “building the connectivity products necessary for advancing AI in the cloud.” Regarding the potential impact of Astera’s successful IPO on other tech companies considering going public for the first time, Mohan stated: “If you have the opportunity to go public, why wouldn’t you?”

Nevertheless, not everyone is fully convinced of Astera’s future growth prospects. The extent of Astera’s long-term success in the AI arena remains a topic of debate. Nick Einhorn, Vice President of Research at Renaissance Capital, a firm specializing in tracking the IPO market and offering public-offering focused ETFs, remains  somewhat skeptical. He acknowledged Astera’s positioning amid the AI trend. But Einhorn pointed out that the company is not primarily an AI firm. It rather benefits from the broader trend, particularly the surge in data center spending driven by AI.

Einhorn highlighted Amazon’s warrant agreement in 2022. Which, although not conclusive evidence of Amazon Web Services being a customer, suggests potential involvement.

However, despite the ongoing discussions about Astera’s AI capabilities, its recent rapid growth and early profitability have emerged as significant factors driving investor interest in the public market.

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