Astera Labs, Inc. ($ALAB)

All right. Well, ladies and gentlemen, thanks for joining us at the 54th annual TMT Conference. Before we go any further, I think I'm contractually obligated to remind you that Extel voting is open. And so if you appreciate the work that either of us up here on stage 2, please lend our support. So without -- out of the way, we have Nick Aberle from Aster Labs VP of Finance and IR. And thanks for joining us.

Appreciate it, John. Thank you very much, and thanks to TD Con for having us. I would vote for you guys to do some really good work. We appreciate your support.

Appreciate that. So let's just dive in. Starting off near-term environment where about a month removed from you guys reporting a pretty solid set of results. Maybe just start by highlighting the key points that investors should be focused on there, whether it's mix or strong outlook, what should we be keying in on? And maybe if you want to take it more broadly, how does that fit in the context of who is stera, and how do you deliver for your customers?

Yes. Got it. So I would say in terms of the near term, yes, I mean, we've obviously been on a nice run in the last couple of quarters. We added good results, guided for a bit of an acceleration to the growth rate in Q2 and pretty optimistic about continued inflection of growth going into the back half of the year. So nothing really new to report relative to a month ago. I mean I think as everybody knows, demand continues to be very robust from a secular standpoint. But I think most importantly, for Astera and what we're trying to accomplish, right, is really building out this connectivity backbone for the industry. And in to be able to do that, we need to be able to broaden and diversify and grow our portfolio to be able to service and support customers in a variety of different ways. So what you've seen from us over the last several years is a diversification and an expansion of the product portfolio beyond kind of our core kind of I/O connectivity products like Ares and tourist into more complex solutions like our LEO, CXL, memory controller and then most recently, the Scorpio smart fabric switch portfolio, which addresses both scale out and scale up market opportunities. So kind of taking a step back, I mean, the name of the game really for us is there's tens of millions of accelerators that will ultimately ship annually over the course of the next couple of years, and we want to be able to staple as many dollars to every one of those accelerators that goes out the door as we can. So if you go back to around the time of IPO, Ares attached maybe $50 to $100 worth of content per accelerator when you started to layer in the scale-up piece of Ares, you kind of expanded that kind of by 2x because of the higher attach rates tourist started to layer into the model as well for scale out, kind of driving that number up overall to several hundred dollars of content. And then with Scorpio, P-Series adding several hundred dollars of more content and then X Series bumping that whole thing up to about $1,000 in total. So in a very relatively short period of time and gone from sub hundred dollars of content per XPU or GPU to upwards of $1,000. And as we think about growing the business and expanding the business going forward. It's going to be layering on additional parts of the portfolio from a connectivity standpoint to continue to grow that $1,000 up much higher than that. I think that's a perfect summary and a good setup and why don't we just go through the star signs. And starting with Scorpio, maybe specifically on Scorpio X, I think it would be fair to say that that's likely to drive a significant portion of the ramp here in the back half of the year. And maybe just throw it to you and say, well, first off, is that accurate? Second is, what are the points of risk on that? Is this -- and to the upside or downside, are there technical stepping stones still left? Or is this just we're going to hit the knee in the curve and you're going to ship from inventory and from your partners.

Yes. So I would say at a high level, yes, so Scorpio X, of course, is going to be a great catalyst for the top line for the remainder of this year and even into '27 as we diversify and broaden across incremental customers as well. [ But all businesses are growing for us. So if we look at the growth rate sequentially into Q2, we're seeing growth across every single one of our product lines into Q3, Q4 and into next year, we expect every single product line to continue to grow as well. And this is a function of kind of secular trends, more accelerators going out the door, more platforms, more racks being shipped, but also higher attach rates, next-generation solutions, driving higher ASPs and higher content on a per product basis. So every single one of these pieces is driving and contributing to growth. With that being said, as you brought up, Scorpiox is a big piece of that puzzle. You have a market opportunity just for Scorpio x of kind of $10 billion plus which is almost half of our total addressable market. So clearly there, the content, the ASPs are extremely rich so they can drive and move the needle a lot more than some of the other pieces of the portfolio. And Scorpio X has been in the works for a long period of time. So it's not something that just has come on to the scene recently, we've been shipping preproduction volumes of Scorpio x back in the second half of 2025. We moved into kind of early volume production. We've expanded the portfolio now to include both smaller rates and larger Radix solutions, of which those are shipping in Q2 as well. So of course, there's always going to be milestones. The volume deployment is not an easy task when you're talking about extremely complex systems and platforms with thousands of components and many accelerators all needing to scale up and work perfectly together in unison. So tons of work still always being done, but very confident about where we stand today and Scorpio X will be a nice driver for us in the back half.

Yes. So I think in a similar way, you talked about tourist likely to be a contributor to growth this year and maybe a more material way than it has been or I guess maybe it was last year as your main customer ramps 800 gig. I feel like taking both on year and a longer-term view on the AEC market for Ethernet, we have a lot of debate amongst us investors about whether or not AECs are dead at pick your line rate, 1.6, 3.2. And yet that's in the context of we're not even now ramping 800 gig. Maybe just talk about where we are in the AEC life cycle and -- is that a durable market for you that you see as a longer term? Or is that sort of a stop gap is a terrible word to use here, but before we move to a more optical-focused ecosystem?

Yes. I mean I think at the highest level, our view is that the optical opportunity within scale out or scale up incremental and additive to our copper opportunity. And you've heard many in our industry just as recently as the last couple of months, talk about copper having a very long life cycle and based upon the characteristics that it brings in terms of power, reliability, cost that it's going to continue to be a preferred use case for wherever you can manage to get the length that you need or the reach that you need out of it. When you talk about Ethernet-based ACs, for example, or in particular, you've seen the growth of that market really be driven by physics such that speeds continue to go up, distances kind of continue to stretch and you've needed active solutions versus passive solutions in order to kind of bridge the gap on these connections. So you've seen the market opportunity for AEC is kind of grow as a function of these secular and technological trends, and we believe that's still in the stages as well. And to your point, is we're just on the cusp of moving to 800 gig and ultimately, 1.6T behind that, there's still a tremendous amount of passive copper opportunity to kind of take share from in the marketplace, so we would expect just the market overall to continue to grow over the next several generations. But overall, I mean, we're excited about not just that, but also kind of optical. I'm sure we're going to talk about that in a little bit as well. But yes, I mean, for us, is going to continue to be a good driver of growth. We see the market growing overall. And then we see ourselves expanding into additional customers as well to kind of broaden our reach there on the customer side.

Great. On the other active copper side on the PCIe side, Ares was, as you mentioned, sort of the flagship for Astera when you guys came public. And by my estimates, and maybe this is too high, continues to drive maybe 60% of revenue even in the early stages of this year, but we've we're now 10 minutes in and we're only talking about it for the first time. So how should we be thinking about Ares both this year and longer term as almost mechanically has to shrink as an overall share of your revenue, but maybe it's still growing internally quite nicely.

Yes. So yes, I mean, you bring up a pretty good point. So in 2025, Ares portfolio grew by roughly 70% year-over-year, which is not too shabby of a growth rate, but came down dramatically as a percentage of revenue. I mean it used to be 90% plus of revenue. And yes, I think you're kind of 2/3-ish number is in the ballpark of where we stand today. So we've seen tremendous growth, but everything else is growing faster, and it kind of goes back to that kind of core kind of theme that I was talking about earlier, and our ability to grow has really been driven by development, expansion of the portfolio, bringing new products to market, not just new products, but products that carry higher kind of higher ASP and higher content is. But Ares has got a great story ahead of it. We're just in the early stages of transitioning to PSA Express Gen VI, we talked about that being a little bit of over 1/3 of our total revenue in the Q1 time frame, not aware of anybody else shipping any PCI Express Gen 6 product and volume today. So we continue to feel very confident in our market position. And for Gen 6 on the PCI Express side, both for scale out and scale up, you'll see a higher ASP on a like-for-like basis on or about 20% generation over generation. We also expect to see higher attach rates in general, again, kind of going back to that physics problem where speeds are going up, speeds have doubled again, and you're going to need retimers in places you didn't need them before. So we expect to see very healthy growth rates for Ares. And then follow that with the 2027 as well. So we continue to be very bullish about PC Express.

This is maybe this is a curve ball in prep Nick. But is the dynamic with Ares maybe that it moves from the -- as the scale-up domains move to optics, the physics on the scale out or front end dictate that Ares maybe becomes much more prevalent and the use of retimers for PCIe where you -- as you just mentioned, you previously don't need a retimer to get from the CPU to the BMC or whatever, is that where we should think about Ares starting to move into, call it, plus?

Yes, I would say, yes. So the attach rates on that scale out or kind of head no connectivity domain, where you're connecting between CPUs, GPUs, storage, memory networking, all of that is going to continue to be wired by PCI Express. PCI Express is going to continue to evolve and provide faster speeds and even though those traces aren't getting a ton longer, it's still going to be trickier to get from each endpoint to endpoint. So we do expect to see in that domain, a higher attach rate of PCIe retimers. For scale up, I mean, I think that market is still going to be a very nice opportunity for us as well. I think -- and we'll talk about optical in a second. But as you start to get the multi-rack and you need to go over 7 meters and you need to go hopping to 3 racks over, then you start to need an optical solution, you can't use copper or PCI Express. So that will be an additive market opportunity there that we'll try to prosecute. But yes, certainly a lot of opportunities still for PCI Express on the scale upside as well. I think the last thing that I would point out is we continue to talk about 10-plus customers for scale up for Scorpio X, which we talked about the lead customer and how that's going to ramp, and that's great. But there's a whole slew of incremental PCI Express opportunities for X Series that will pull through PC Express retimer business as well, both for scale up as well as scale out. So we're excited about those opportunities as well.

Yes. That makes sense. Let's talk about optical. So you guys have talked about sort of the 2028 time frame where that scale up will start to flip appreciating that especially as we've seen with NVIDIA and Google, how they are sort of deploying a hybrid copper optical scale-up domain, we'd assume that that will look similar. You guys made it a public investment, AI, ex scale, I think I said that right. I think what many, including myself, have failed to appreciate is what you guys have been doing behind the scenes on sort of getting your EIC and PIC portfolios ready and really heavily investing, not in a M&A style but in an R&D style to be ready for this optical transition. Maybe you could just fan upon that.

Yes, yes, definitely. Yes. So we've been at it for at least a couple of years now on the optical side, putting together the team, gathering the resources and trying to build out the road map of how to attack this market opportunity. And of course, as with everything that we do, a lot of this is done in very close kind of in concert with our customers. So we understand their road maps, their timing, what challenges that we need to be solving for in the next 2 to 3 years, whether it's copper or optical. And we do see opportunities to kind of intercept on the optical side with products that are in development for us currently. So I think that you'll see over the course of the next several quarters, us continue to lay out very kind of finite signposts about our progress and how we're heading down this track. We've talked about generating optical-based revenue in 2027, both from the fiber coupler on a stand-alone basis and from NPO applications as well. So kind of stay tuned for that, but that's on the horizon for growth. And in 2027, but yes, I mean, it's -- there's a fair amount of complexity with what we're trying to do from a road map standpoint. The xScale acquisition for us was very meaningful as we've been doing our research and homework and discussing with customers over the last couple of years, this coupler technology. It's a little bit more of an art than a science, something that's outside of our typical kind of capability and flow. So it makes sense to go acquire it. And we were attracted to that because it was a solution that is probably not talked about as much as the ESC in the PIC, but something that's very meaningful and influential to the overall scalability of the overall engine. So that's an important piece. That will be sold as a stand-alone component. We talked about a leading infrastructure provider, building that into their CPO solution that will be ramped next year. So we're excited about shipping just that stand-alone piece in the volume. And then there will be another step as we move towards the back half in the next -- of next year where NPO becomes an application that we can begin to address agenda and Sanjay have been talking about building out our analog mixed-signal capabilities and so we'll have new products that will be able to address that part of the market. Those products will be integrated into an EIC piece that will ultimately drive our own pick as well. All of that development is being done in-house organically currently. And then there is a packaging and a test and a manufacturing flow that is very complex as well that kind of brings all this together and allows you to deploy an optical engine at scale as well, and that's all being worked on as well. So tremendous amount of work being done on that front. The expectation is that the end of the road will have an optical engine that we can bolt around Scorpio X and create a CP or own CPO solution that provide to customers. And that optical engine could ultimately be used on the other side of the link as well and be integrated around customers AI accelerated as well. So we want to be in a position where we can provide full link accountability across the entire domain. So those are some of the pieces that we're driving towards. So of course, we'll announce more formal products and get a little bit deeper on exactly what we're doing, how we're differentiated, what the market size is. But I would just say a tremendous amount of work being done, and it's a big market opportunity.

Yes. And I think 1 of the things that Jitendra has talked about as well is that you're looking to be photonics agnostic. Maybe you could talk about what that exactly means because I don't know that just those 2 words makes a lot of sense to me without going deeper, but maybe you can just talk about what -- how you're fitting into your customers' plans and road?

Yes. So I think that what we've discovered in conversations with customers and in is that certain customers have a certain religion around Photonics. ICs what modulation to use different features and functionalities that are going to be priorities to their systems and their workloads that they're trying to operate. So from our perspective, again, I mean, we're -- I think as you've seen probably across our entire portfolio and how we kind of manage this is we want to provide customers optionality. We want to support flexibility -- so to the extent that a hyperscaler customer would want to use their own specific photonics IC for whatever reason that they might want to do that. we're building the rest of the puzzle in an agnostic manner to be able to incorporate and leverage that pick -- we'll have our own organic PIC technology as well. So that will be offered and kind of hopefully utilize broadly as well. But we wanted to provide a little bit of flexibility there just in case folks wanted to go down a different path and focus on their own piece that was going to be their own special sauce to that equation.

I think another example of that philosophy and your approach to how you deal with customers is the envying Fusion concept. I will say that I think it's 1 of the more debated topics for your company these days. Can you just walk us through what that looks like from a -- either from a product level or how you actually expect customers to deploy an NVLink fusion configuration versus maybe your own native

Yes. I mean, so to your point, yes, I mean, it's another kind of example us trying to provide flexibility and optionality for customers. I think this is a pretty exciting one. Any time you get to work with guys like NVIDIA and AWS on a project like this. is something pretty meaningful and kind of shows you, there has been a track record of execution and trust kind of built up between our companies over the course of the last several years. So very excited to be part of that program. And yes, I mean, I'm not sure I want to get into the actual specifics around what they're specifically solving for or trying to accomplish. But I would say that in general, there could be applications where a customer, a hyperscaler would want their accelerator to be able to interface with NVIDIA's back-end scale up topology. But it's not native that accelerator to be able to communicate with a blink protocol that has been proprietary to date. So where we step in as we provide kind of the bridge of that translation layer with a pretty complex, I would say, almost fabric level solution that will sit between the accelerator and we switch on the other side on a one-to-one basis to be able to provide that translation. So that requires a pretty hefty amount of kind of collaboration and coordination and development with both of those companies to make that happen. So very excited about that project. I mean, it's kind of opened some new doors as well, NVIDIA can be a good matchmaker. So we're seeing additional kind of doors opening as a function of that. I mean talked about customers, there are any specifics there, but I would say that there's the 1 kind of agreement or the 1 collaboration that we've talked about openly, but there's others percolating as well.

I mean, and it sounds very, I don't know, bespoke and hand in hand. How should we think about the competitive environment in those kind of projects?

Yes. I would say, yes, I mean, it's a custom solution. So it's not something that's going to be handed out in multi-store or something like that. So yes, I mean, it's going to be coming down to relationships, track record of execution, trust -- and there will be a whole slew of different opportunities and sockets to go after. I'm sure that we will not win every single 1 of them. There's other folks in the space as well that will certainly be looking to attack and kind of grow along with this market opportunity as well. But Nice to have a lead customer to kind of hang our hat on. I'm sure there'll be a tremendous amount of learnings gathered through this process that will give us a good leg up in leverage as we look to kind of support and service additional customers. But yes, it will be competitive. But yes, it won't be a multi-score situation. It will be -- you'll win on your own merits for that specific socket and go execute that.

Yes, it would be fair to characterize it as sort of a project-based -- correct -- and you would get significant amounts of that. If not all of that exactly. Yes. Okay. Let's spend a few minutes just on supply chain. The investor base is -- it seems investors are searching for the next bottleneck around every corner. I guess, open-ended question, where are you seeing constraints? How are you thinking about dealing with it? We saw AMD invest $10 billion in their Timone supply chain relatively recently. How are you going about managing that side of the things.

Yes. I mean we've been building out our kind of back-end operations for a long period of time when it's always been kind of built with an eye towards scale volume and big numbers ramping, right, even from when we were a smaller company. And that's largely driven by the customers that we were trying to obtain in service and support. And we've been successful at that and it's kind of paid dividends. So I would say from a supply standpoint, I mean, we have a very good understanding what our allocation profile looks like on both the front end and the back end looking out through and feel very comfortable about where we stand from a supply standpoint. And of course, we've buffered that kind of upside as well to the extent that customers come back and need more. So there's a sulfur Infinite upside? No, of course, it doesn't. But in terms of what we've built in terms of our model and how we're looking at things and what are conveying to us. We feel very comfortable with our supply situation with room for upside. To your point, that's also not a full proof plan because there's other pieces of the puzzle that are within these racks. So to the extent that they're short on something else, could that delay program rollout, get a delay the timing of something. Sure, it could. We've typically tried to provide a son buffer around our expectations for timing and ramps anyway to kind of hopefully kind of protect and stay conservative against those types of scenarios. So nothing I would call out specifically. I know everybody is working very hard to kind of not let that happen. But for us, in terms of what we control, we feel very comfortable at this moment. Yes, hard to hold you responsible for someone else's part, if it becomes a bottleneck.

Yes. Just on that same topic, but thinking about the future road map, 1 of the places, I think, is the most bottle neck, if that's a word, is the optical space. And I would -- I think it's fair to say that that's a relatively new area of supply for you guys is that work would presumably need to start getting done today. Is that fair to say? Any comments

Yes. I mean, yes, so those relation -- again, this has been something that's been kind of going on for the last couple of years. So we've been working and partnering with -- across the ecosystem for both the electrical side of the house as well as the photonic side of the house. We're building out manufacturing capabilities around the fiber couple well that kind of came with the xScale acquisition. So we're expanding that profile kind of proactively to be able to service kind of good volume in 2017 and ramping well beyond that. So yes, I mean, I think we feel -- I mean, again, it's a very tall task in addition to developing these products kind of we've been kind of -- the guys that have been mandated with building out that system and the supply chain in order to give customers confidence that we can support and supply -- but yes, I mean it's in concert with the customers as well. I mean that's 1, 2 punch to go on to the market and kind of get what you need, so.

Yes. I think I'm required to use the word Agentic at some point during the fire side. So I think it was surprising to hear maybe some discussion of LEO and CXL. I mean we wrote a deep dive in 2024 and CXL was this whole chapter. And then nobody talked about CXL for another 2 years -- how does Agentic and agentic workloads sort of fit into the LEO portfolio?

Yes. So as you're kind of alluding to, like the dynamics within the memory space have become quite challenged over the course of the last 6 to 9 months with rising prices constraints. So I would say that where we were previously very focused and engaged with customers on a more general purpose compute applications, you're more standard servers. That we're now seeing a lot of increased interest, engagement activity around leveraging XL within AI inferencing applications. And we talked a little bit about this on the conference call that basically hyperscalers are looking very closely on different ways to optimize and get every penny they can out of every -- or get every bit of performance they can out of every penny that they spend on the memory side. So that activity and engagement is all very good. That's very broad and it could be very meaningful. I think the 1 kind of most tangible piece of that is we did talk about a new design win with the hyperscaler customer for a customized version of LEO that will be used for its CXL kind of connectivity purposes within kind of AI inferencing appliance. And so that will be kind of hopefully the first kind of shot across the bow in terms of some real revenue and some real momentum within the CXL space. I agree. It's been a long time coming. We've been talking about it since IPO, and it's unfortunately, kind of kind of lagged behind because of the kind of AI took the -- kind of took the day and CapEx started to go that direction. But yes, kind of funny how things come back around, and we're certainly seeing a lot of interest there and excited about it finally kind of kicking off.

I think your P&L has done okay. Big picture to close. We're at time. But what's the biggest difference between the conversations that you're having with us and the conversations you're having with customers in partners. Like what are we too focused on? What are we not focused on enough?

I mean I think the biggest thing that we hear from customers that you guys probably don't have as much visibility toward is really kind of that 3- to 5-year lens, where they know exactly what they're trying to build, where they're trying to go with their accelerator capabilities, with the RAC capabilities and then how many of these things they want to ultimately cluster up and scale up and what that does is create a tremendous amount of challenge and complexity for the connectivity backbone of all of this. So they need to be very tight with folks like us and some of our peers to be able to solve for some of these challenges in order to meet their deadlines and their time lines and service the workloads that they're trying to prosecute. So I would say that the conversations that we're having aren't about what's going to drive revenue in '26 or '27, even. It's how we have to solve these next-generation connectivity challenges 30 layered across a broader portfolio for Astera Labs across both optical and copper. So there's a tremendous amount of work and collaboration and co-development that's being done in order to make that all happen. So that's probably a bit of stuff that you guys are not seeing the full kind of all the way down to the lowest level.

Great. Well, perfect place to wrap. Nick, thanks so much for your time.

Yes. I appreciate it, John. Thanks.