Astera Labs, Inc. ($ALAB)

Hi, good morning everybody. So Suji Desilva, systems analyst at ROTH. Usually, I have to go back and look at somebody's bio when I'm meeting them, but I've known Nick most of his career. We started talking to each other when back at NetLogic and Broadcom and MaxLinear. He's been around the semis industry for a while, and he's had the fun opportunity to help Astera Labs come public recently, a very exciting story in the AI space that we've helped. ROTH has been along for the ride with and privileged to have you here. Nick, it's really great to talk about Astera's story and the success level because the numbers just keep surprising us, and they're pretty amazing. So thanks, Nick, for your time, of course. Welcome.

So the -- maybe just -- I keep -- so one of my companies told me this morning that the model technology they built 2 years ago is already outdated and wouldn't really be useful in today's effort. That's how quickly this is all changing. So maybe you can talk about where you sit and how you're seeing that these models are evolving so fast that your technology is helping people keep up. And we'll get into kind of what Astera does in this kind of through the questions, but maybe we could start there and what you're seeing because that's the flywheel you guys are helping support, I think.

Yes. Thanks, Suji, for the invite as well, and I appreciate having a mic. I feel like I'm channeling my inner rapper right now, something ...

You got a station.

Yes. But yes, I mean, the treadmill is running really, really fast. And fortunately, for Astera Labs, we get to have a ringside seat to the speed and the cadence that we've become accustomed with. And we've been fortunate enough to be able to stay on that treadmill and not get knocked off as things continue to go very quickly. And as an example, I think when we came public just a little over -- right around 2 years ago, an AI server was defined as an HGX Hopper-based system that had 8 GPUs on it, and that was the extent of an AI server 2 years ago. Fast forward to today, and now we're scaling up over 72 GPUs within a single rack and looking to branch out beyond that. And then you had Jensen at GTC last week talking about scaling up across over 1,000 GPUs. So Astera Labs in terms of positioning within that infrastructure is in a very unique position such that we are the nervous system of these boxes, and we're helping to connect very important endpoints such as GPUs, but also CPUs, networking, interface cards, memory, storage and all of these things are talking together and to each other through typically protocols such as PCI Express. And we've benefited just due to the increasing speeds of these boxes and the increased size of the clusters, you start to run into a lot of problems when you talk about both speed and distance. So we've had a nice ringside seat. Execution has been great over the last couple of years. And what it's afforded us on a go-forward basis is a seat at the table with hyperscalers defining what the next generation and the next generation after that is going to look like. What are the challenges going to be in those boxes from a connectivity standpoint and how can we help to service those. So to your point, the secular trend is very much alive and well. The demand for just raw compute is going off the charts. And our customers and our partners are all trying to solve how to deliver that compute in the most productive and efficient way possible. So that's where we're really linking up with these guys. So yes, I mean, we're well positioned. We benefit from the secular growth trends, but we also continue to bring out new products and deliver new solutions so that we can grow faster than the market.

I promise we'll go through the product Astera offers. And the next question is the question before that, that I'll lead to that. What is it about -- you've been in Ethernet and Broadcom. You've seen the cloud development. What is it about these workloads and infrastructures that is so demanding of the connectivity part of this equation that you see that you have to adapt your products?

Yes. I mean it really is kind of coming back to the speed and size or speed and distance. So every generation, we're pushing forward starting at -- for Ethernet, for example, going from 25 to 50 gig per lane, just starting to kick off 100 gig per lane, going to 200 going to 400. Every single time you go to that next generation of speed, it limits the amount of distance that you could travel and send signals with high fidelity. And while that is happening, you're going from boxes that have 8 GPUs up to 72 up to hundreds and hundreds and hundreds of GPUs. So the distances are expanding at the same time that the speeds are going up. So this creates a tremendous amount of bottleneck around the connectivity portion of the system when compute needs to happen at incredible speeds, but you need to take and have a pipe that's going to be able to transport those signals back and forth. So I would say that, that's the hugest piece or the largest piece of the problem. I think the other piece that ourselves and others are trying to solve as well is no 2 clouds are the same. No 2 hyperscalers are the same. They all have different ways of approaching this problem. They are all building their own internal solutions that have different characteristics and attributes. They're also leveraging merchant solutions from the likes of NVIDIA and AMD as well. So from a connectivity standpoint, you really do need to leverage your focus on open platforms, open systems, open protocols. You need to have flexibility built into your architecture. You need to have a software framework that's able to adapt to a multitude of different processors, a whole slew of different brands of memories and network interface cards and CPUs, and it all needs to work together regardless of how it's mixed and matched. So it's not as simple as just bringing a chip to the table that's performance and it can support speeds and push distance. It also needs to be able to interact with a whole variety of disparate endpoints and do it in a way that's invisible to the customer. At the end of the day, these guys are fleet managers sitting in a data center presiding over tens of billions of dollars worth of infrastructure. And to monetize that, you need it up and running and performing at the highest percentage that you can. So we can sit in the connectivity nervous system and be the eyes and the ears of these systems and provide valuable feedback and insights to these fleet managers to notify them if power surgers are coming online, links are going down, all types of different analog attributes. And therefore, they can take that data and go solve problems before they become big problems. So that's how we're trying to help solve this piece.

I guess the key metric for these folks is the uptime really that that's the currency of AI is what you're saying. So as engineers, you get to name your product whatever you want. And so you can use Marvel characters or these guys have chosen astrological names. So we'll start with the Aries product, which is the retimer, which seems like a fairly straightforward product, yet it had profound benefits. And maybe, Nick, you can touch in the discussion of Aries on Copper versus a lot of the talk about optical. We're going to have that theme maybe throughout this conversation, but we can start there.

Yes, sure. So Aries is kind of our flagship solution that we cut our teeth with kind of 2, 2.5 years ago, designed across 100% of NVIDIA-based platforms as they ramped Hopper into high volume into the marketplace. And even until today, we ship Aries into every single major U.S. hyperscaler customer on the planet and every single merchant GPU provider on the planet as well. So very broadly adopted, very successful product line that's driving hundreds and hundreds of millions of dollars of revenue. And it's going to continue to grow going forward. As we just discussed, as distances continue to increase and speeds go up, you're going to need retimers in places you didn't need them before. So we expect attach rates over the long term to continue to increase. And as you move from each subsequent generation of product to another, talking about PCI Express Gen 5 moving to Gen 6, ultimately moving to Gen 7, ultimately potentially move to UAL. Each of those products are going to be more performant, more complex, more capable than the previous generation and will command an ASP increase for those as well. So yes, this is definitely kind of the foothold of how we got our start. Effectively, Aries has been deployed across every major data center deployment for AI over the course of the last couple of years. And we're firmly entrenched from that standpoint to have COSMOS and Aries be widely deployed and battle tested across the board. In terms of optics, and we can, of course, kind of start to unpack that a little bit as we talk about Scorpio as well. But our viewpoint is that optics is going to be a big TAM adder for us. We have a very large $25 billion TAM to prosecute today just on the copper and electrical side alone. But when you start to bring optical into the mix, you're going to need additional components around the components that we already supply. And those components are not cheap. So probably a gating factor for massive adoption tomorrow. But as you need them, as distances get further and further, further away and you start to cluster and scale across multiple racks and not just one rack, we'll be definitely looking to sell optical engines around Scorpio, optical engines to our XPU customers to bolt around their XPUs and then potentially on a discrete basis, different pieces of an optical engine to folks that want to leverage our technology.

Now let's move on to the Scorpio product, which is going to be -- which the PCI switch as opposed to retimer alone, and that is ramping in volume revenue contribution significantly in the second half of this year. What is the critical element that a PCI switch is needed for and provides because it's an ASP uplift for you as well on a unit basis? So all those thoughts of yours?

Yes for sure. So the application and the use case spans well beyond what a retimer does. Of course, the retimer is very important, and it's helping to move signals back and forth with high fidelity and to keep systems up and running and be productive. But then when you start to move into a switching class of solution, you're talking about much bigger die size, more capabilities, more functionality, you're now the traffic cop that's sitting in between all these very important endpoints, whether you're talking about CPUs, GPUs, networking, memory and storage. So from a portfolio perspective, we've divided Scorpio into 2 main buckets. We have the P-Series, Scorpio solutions that are for what I would call head node connectivity, being that traffic cop within a compute tray, talking in between all those important end points. And then we have an X-Series solution for Scorpio as well that specifically interfaces just between GPUs or just between XPUs for a scale-up application. So what we saw over the course of the last 12 months is Scorpio as the fastest and quickest growing product line in the history of the company going from effectively 0 in the Q1 time frame of 2025 and ultimately ended up shipping over $125 million worth of Scorpio P-Series solutions last year. So a very quick growing product, and that was at primarily one customer on one big platform. So it kind of shows you the potential if you knock down a couple of more. So very positive and optimistic about how P-Series is going to continue to ramp. What we just discussed on our latest earnings call is that we expect ramp P-Series Scorpio solutions at least 2 additional U.S. hyperscaler customers starting probably at the tail end of this year, but more into 2027 across both merchant GPU platforms and internally developed XPU based platforms. And then the X-Series solution is going to start layering on in the back half of the year for scale-up applications. We have a large customer that's going to leverage X-Series for their rack scale solution for scale-up and that's going to further kind of expand our content portfolio as well. And beyond that customer, we've talked about 10-plus additional engagements for X-Series of which maybe a couple more will start to ship at the very end of this year and kind of layer on top of that lead customer. But we're still very much in the early stages of this game. The market is just developing, we're going from basically a market that was $0 last year to a market that could be as big as $10 billion or more by 2030.

Great. And then, yes, so the second half ramp is for the X-Series, the P-Series is already ramping then. And maybe you could talk a little bit about Taurus and the AC market, the cabling or connectivity has become an important element, I guess, box-to-box or maybe you can help us clarify there's tons to bring optical all the way to the chip and there's some cabling there as well. So maybe you can help kind of clarify that one.

Yes, sure. So similar to what I discussed on the PCI Express side, you have the same issues in the Ethernet where distances are increasing and speeds are increasing as well, so you need active solutions or active electrical cabling solutions that have retimers on each end of the cable that are allowing those signals to be passed up over longer distances at high speed without losing their fidelity. So we had a great year with Taurus last year. Again, we just started ramping tourist in the back half of 2024, so that was effectively 0 at that point and did over $100 million of Taurus revenue in 2025. So getting up to being 15% plus percentage of total revenue for the company. And that's, again, primarily one customer across a variety of platforms at that customer. But I think the catalyst there is as we transition in 2026 towards 800 gig port switching speeds that similar to PCI Express, speeds go up, and you're going to start needing cables and retimers and places you didn't need them in the prior generation. So our expectation is that we are going to expand beyond the lead customer in 2026 and ramp additional designs at new customers on 800 gig starting in the back half of which should continue to drive some nice growth for that tourist product line.

Great. And I don't recall you guys being terribly acquisitive, but you did find an asset you liked recently aiXscale you'll pronounce it. And there's an entree into optical. Maybe you can talk about what it was about that acquisition that appealed to you? And maybe kind of how it hints at your road map that kind of incorporates optical in that TAM.

Yes. So I think, again, kind of -- I mean just to kind of set the stage a little bit, going back to IPO road show. I mean we've always talked about looking out over the next 5-plus years and expanding beyond our copper roots and getting into the optical arena. So we started out with Aries in a very kind of narrow set of solutions to Leo memory controllers and bigger solutions, switch fabrics, which are now much bigger, higher protein solutions. We provide chip only solutions. We provide modules, add-in cars, system-level solutions. And then ultimately, we'll have a copper portfolio and we'll have an optical portfolio as well. So it's not something that we just kicked off in the last -- since the earnings call, we've been planning this for quite some time and putting the pieces in place to be able to participate in this incremental market opportunity. And as you look at the solution, we're focused on the scale up side of optics because that's where we play today, and that's where we see the biggest TAM. And we are very well positioned with Scorpio X-Series as an anchor socket within these back-end topologies to be able to not only provide electrical and copper-based solutions, but to optically enable Scorpio as well for these multi-rack applications where you'll need both electrical and optical solutions. So there's a couple of pieces of the puzzle that need to obviously be developed and solved. We've been working on some of those organically already for the last 18 months. But as we got close to customers and started really kind of diving into them, this connector technology, this bridge in between the optical engine and actual fiber media itself is a very nuanced and critical piece of the puzzle and that something that we felt like we were well positioned to kind of organically develop. So we acqui-hired a small team in Germany called aiXscale, as you pronounced correctly, which a few people do, that brought this connector technology, which is basically a small piece of glass that interfaces between the optical engine and the fiber that will be used within our CPO solutions down the road, it could be used in optical engines that bolt on to XPUs and it can even be sold discretely. And we talked about on the earnings call that we actually have a large customer qualifying just the stand-alone discrete glass coupling piece, which hopefully could drive some volume starting next year as well. So lots of work to be done here, but comfortable with the position that we have with Scorpio. And we still have some runway here. I mean I think Scott were talking 2028 and beyond before we start to see mass adoption but tightly partnering with customers now to define what needs to take place, what needs to be launched at what time to be able to intercept this market and it's going to be a big TAM matter. This stuff is not cheap. So everybody keeps saying, what is optical takeover? And this is not a magical moment where optical takes everything because it is expensive. It is less reliable. It is more power hungry. So there are gating factors for mass adoption, but in places where you absolutely need to span a certain distance that can't be achieved with copper, you'll do it with optical, and that will start to phase into the kind of the mix over the course of the next couple of years.

A company like yours can give us insight. As you look at your kind of R&D kind of allocation, how much of it is an optical team and a copper team? And how much of it is really synergistic where we overestimate how separate these are?

It actually is a large piece of leverage to synergistic R&D effort that's being taken advantage on both sides of the aisle. Now of course, there are nuanced pieces of the optical side of the house that will need their own resources and their own team to be able to support and develop that type of stuff. But there's a lot of core competencies that we're going to be able to leverage on the copper side specifically that are going to be able to translate into optical. So when we think about our -- how we are going to grow the team and we doubled our head count in 2025. We're looking to grow that significantly again in 2026. We've done 2 acqui-hires in the last 2 quarters to kind of accelerate that process. They're going to be slotted into all these different projects and all these different opportunities. Like I said earlier, we have a good track record of execution. Now our customers are coming to us to help them solve the connectivity problems of tomorrow and the next day after. So we need resources in place to be able to support and not overpromise and deliver against these big mandates. So the team is going to continue to grow. The OpEx is going to continue to grow. We never really break out what portion is working on what, but I would say that there is a lot to leverage across both domains that we will take full advantage of.

I hope that helped clarify a bit for the audience as kind of copper and optical are being talked about a lot. There is more similarity and difference. I'll throw it out to the audience for questions to see if there are any for Nick here. Any questions from the audience?

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Yes. So that's probably more applicable to like the Aries and the Taurus business lines where we're doing the signal conditioning and reach extension use case. So today, using copper at current speeds probably take -- go up to 6 to 7 meters. Beyond that starts to get tough, and that would be the kind of breaking point where you have to start bending towards optical, roughly speaking.

Thanks. Any other questions from the audience? Maybe Nick while the audience is gathering its thoughts. You can talk about your work with the NVLink and the Fusion program. That seems like a unique sort of technology opportunity into the NVIDIA platform, maybe tells what that is.

Yes. I mean it's exciting for us. I mean, we've had a long-standing relationship with both NVIDIA and AWS, so very happy to be kind of invited to the party to be able to collaborate with these 2 juggernauts in the space. So for those who don't know, NVLink Fusion is effectively a program that NVIDIA has extended to folks that build their own accelerators or their own XPUs to be able to leverage the NVLink backplane scale-up topology that's been ramped at scale has proven and to be the best in the world at this point. So there's a big opportunity there for guys like us to be able to provide the translation and be the bridge in between these 2 worlds, right? Because the XPUs don't speak NVLink. They speak their own language, whether they're based on PCI Express or Ethernet, but they need to interface with the NVLink scale-up protocol. So there's a lot of work being done on a 3-way basis between ourselves, AWS and NVIDIA to be able to solve for what that translation looks like. And that will be productized in a solution that sits next to every XPU that's able to take the language coming out of the XPU and then push it to an NV switch on the back end for scale up. So for us, it's a huge kind of incremental opportunity in terms of kind of revenue and a new program and a new socket. And I think even beyond that, our expectation and hope is that it's not going to stop at just AWS, there'll be more folks looking to leverage NVLink Fusion to scale up their processors. And we would love for NVIDIA to be -- continue to be a matchmaker for us and to link us up and pull us into some incremental programs and we're starting to see some of that engagement today. So more to announce and kind of sign posts to lay out over the next couple of quarters, but it's been pretty encouraging.

Any other questions from the audience? In the back.

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Yes. So yes, if you go back even just as recent as 12 to 18 months ago, the PCIe retimer business was probably 90% to 95% of total revenue. Exiting 2025, it was kind of down into the 55%, 60% of revenue and that business still grew 70% last year. So you can do the math on how fast everything else was growing to be able to reduce the percentage of exposure on the PCIe retimer side. So we continue to think PCIe retimers grow going forward, but we think Scorpio and some of the other businesses grow faster. So it should continue to come down as a percentage of total revenue. In terms of the transition from Gen 5 to Gen 6, still pretty early in the game today, really the only PCIe Gen 6 capable GPU in the markets Blackwell, being supplied by NVIDIA, and that's driving 100% of our PCI Express Gen 6 business. But undoubtedly, there will be incremental GPU suppliers, CPUs, ultimately, all the peripherals that will kind of continue to get dragged on to the next generation. And I think crossover will probably not happen until 2027. But good thing for us is that, again, on a like-for-like generation-over-generation basis, we see about a 20% uplift on the ASP side. So even if units were to stay constant, which I don't think they will, I think they'll grow, we will see an uplift in the revenue profile just because of the ASP increase.

Well, it was nice to have a business growing 70% decrease in the mix. That's -- it's a nice problem to have. So with that, we'll thank Nick for his time and everybody, and thanks for coming, Nick.

Thanks, I appreciate it.