Astera Labs, Inc. (ALAB) Q3 2025 Earnings Call Transcript

Access earnings results, analyst expectations, report, slides, earnings call, and transcript.

Overview

The earnings call highlights strong revenue growth, optimistic future guidance, and diversification into high-potential product lines like Scorpio X. Despite some margin concerns, the company's expansion into AI infrastructure and significant market opportunities, particularly in China, are promising. Management's cautious guidance was conservative, leading to a revenue beat, and the Q&A session revealed strong engagement with AI platform providers. Overall, the positive aspects outweigh the negatives, suggesting a likely positive stock price movement.

Key Financial Performance

Quarterly Revenue $230.6 million, up 20% from the prior quarter and up 104% versus Q3 of last year. Growth was broad-based across signal conditioning, smart cable module, and switch fabric products. Scorpio P-Series contributed significantly with initial volume ramp at lead customer and new design wins across AI platforms.

Non-GAAP Operating Margin 41.7%, a new record level for the company, up 250 basis points from the previous quarter. This was driven by strong financial performance and new design wins.

Non-GAAP Gross Margin 76.4%, up 40 basis points from the June quarter levels, with product mix remaining largely constant across higher volumes.

Non-GAAP Operating Expenses $80 million, up $9.4 million from the previous quarter due to higher payroll taxes and the continued expansion of the R&D organization. Breakdown: R&D expenses were $57.2 million, Sales and Marketing expenses were $10 million, and General and Administrative expenses were $12.8 million.

Non-GAAP Diluted Earnings Per Share $0.49, supported by strong revenue growth and operational efficiency.

Cash Flow from Operating Activities $78.2 million, contributing to a total cash, cash equivalents, and marketable securities of $1.13 billion at the end of the quarter.

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Operating Highlights

Scorpio P-Series: Continued its initial volume ramp at lead customer and achieved new design wins across various AI platforms at multiple hyperscaler customers.

Scorpio X-Series: Shipping in preproduction quantities with a volume ramp expected throughout 2026.

Aries PCIe 6: Industry's first and only PCIe 6 retimer solutions ramping in high volume, contributing robust growth.

Taurus: Drove strong growth with incremental opportunities shipping in volume across AI and general-purpose systems, with further growth expected in 2026 for 800-gig switching platforms.

Leo CXL memory expansion products: Exploring AI inference use cases to offload memory from expensive on-package HPM to large pools of DDR5 memory, broadening opportunities beyond general-purpose compute applications.

AI Infrastructure 2.0: Industry shift to AI Infrastructure 2.0 with ultra-low latency connectivity for large workloads. Analysts forecast CapEx at top 4 U.S. hyperscalers to surpass $500 billion in 2026.

Open standards-based solutions: Proliferation of open standards-based AI rack-scale platforms to enable interoperability and a diverse multi-vendor supply chain.

UALink scale-up connectivity standard: Continued momentum with strong customer activity, expected to generate early revenues in 2027.

Employee growth: Global team expanded by 60% in 2025, expected to exceed 700 employees by year-end.

Non-GAAP operating margin: Achieved a record level of 41.7%.

Acquisition of Xscale Photonics: Acquired Xscale Photonics to develop photonic scale-up solutions, combining fiber chip coupling technologies with Astera Labs' expertise.

Technology roadmap: Advancing technology roadmap to support future growth and scaling capabilities.

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Risk or Challenges

Market Conditions: The industry is rapidly adopting rack-scale infrastructure, which requires ultra-low latency connectivity for large workloads. This shift to AI Infrastructure 2.0 presents challenges in delivering high-performance, energy-efficient fabric switching solutions to meet surging demand for compute.

Competitive Pressures: Astera Labs faces competitive pressures in maintaining its market-leading position in PCIe 6 solutions and scaling up its Scorpio X-Series and UALink products to meet customer demands.

Regulatory Hurdles: No explicit regulatory hurdles were mentioned in the transcript.

Supply Chain Disruptions: The transition to 800-gig links and the need for Ethernet AEC applications to solve reach challenges of passive cabling could strain supply chain operations.

Economic Uncertainties: No explicit economic uncertainties were mentioned in the transcript.

Strategic Execution Risks: Astera Labs is heavily investing in R&D and acquisitions, such as Xscale Photonics, to expand its technology capabilities. However, integrating new technologies and scaling operations to meet future demands pose execution risks.

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Guidance & Outlook

Revenue Growth: Astera Labs expects Q4 revenues to increase within a range of $245 million to $253 million, representing a 6% to 10% growth from Q3 levels.

Product Family Growth: Growth is anticipated across Aries, Taurus, and Scorpio product families, with particular strength from Taurus smart cable modules and Aries scale-up and scale-out connectivity solutions.

Scorpio X-Series: Initial volumes of Scorpio X-Series are expected to ship in Q4, with high-volume production anticipated throughout 2026. This is expected to significantly increase dollar content opportunity per AI accelerator.

Taurus Smart Cable Modules: Strong growth is expected for Taurus smart cable modules, driven by increased volumes on 400-gig designs for AI scale-out connectivity.

Aries PCIe 6 Solutions: Aries PCIe 6 solutions are expected to drive broader adoption across the ecosystem, contributing to revenue growth in Q4 and beyond.

UALink Solutions: Astera Labs plans to launch UALink solutions in the second half of 2026, with early revenues expected in 2027. These solutions aim to address scale-up networking challenges in AI infrastructure.

Xscale Photonics Acquisition: The acquisition of Xscale Photonics is expected to enable the development of photonic scale-up solutions, contributing to long-term growth opportunities in scale-up photonics.

AI Infrastructure 2.0: Astera Labs is advancing its intelligent connectivity platform to support the shift to AI Infrastructure 2.0, which requires ultra-low latency and high-performance fabric switching solutions.

Market Trends: The industry is forecasted to see rapid growth in large-scale AI infrastructure deployments, with CapEx at the top 4 U.S. hyperscalers expected to surpass $500 billion in 2026.

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Shareholder Return Plan

The selected topic was not discussed during the call.

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Key Q&A

Q:What is the market opportunity for Astera's scale-up products, particularly Scorpio X?

A:Astera sees a growing market opportunity for its scale-up products, especially Scorpio X, which is estimated to be in the tens of billions of dollars. The company is ramping up production with PCIe-based scale-up solutions and has engaged with over 10 AI platform providers. They expect meaningful revenue from UALink to start in 2027 and production ramps for scale-up solutions to happen in 2026.

Q:How is the Scorpio X strategy playing out in terms of additional content pull-in?

A:The Scorpio X strategy is enabling additional content pull-in, such as retimers, gearbox devices, and controllers. Once Astera's scale-up solutions are in place, it opens up conversations for other products. Future design wins are expected to scale up to multiple thousands of dollars at the accelerator and rack level.

Q:How is Astera diversifying its business with Scorpio X?

A:Astera is working towards diversifying its product lines and customer base. The company has over 10 customer platforms engaged, including third-party GPU-based platforms and custom accelerator-based products. This diversification is supported by progress in design wins and technical POCs.

Q:What are the factors affecting Astera's gross margins?

A:Astera's gross margins are affected by the mix of hardware products and modules versus silicon, which is margin dilutive. The company expects margins to stabilize around 70% in the long term, with operating leverage as revenue grows.

Q:What drove Astera's revenue beat in the quarter?

A:Astera's revenue beat was driven by breadth across all three product lines. The company was conservative in its guidance due to the complexity of new programs but benefited from successful customer deployments.

Q:What is the outlook for the Aries family and Scorpio product lines?

A:The Aries family is expected to see significant revenue growth this year and next. Scorpio is anticipated to become the largest product line by revenue, with a major ramp in 2026.

Q:What is the timeline for material revenue from optical products following the Xscale acquisition?

A:Material revenue from optical products is expected in the 2028-2029 timeframe. The Xscale acquisition adds capabilities in glass components and photonics expertise, enabling Astera to develop optical solutions aligned with customer roadmaps.

Q:What is the status of Taurus deployments and the transition to 800-gig?

A:Taurus deployments are diversified across multiple customers. The 800-gig deployments are expected to start ramping in early 2026 after initial POCs and qualifications.

Q:What is the revenue contribution of Scorpio to Astera's overall revenue?

A:Scorpio is expected to contribute about 10% of revenue for the full year, with an exit rate closer to 20% in the December quarter. The Scorpio X-Series is expected to ramp materially next year.

Q:What does Astera mean by having 10 AI platforms involved with Scorpio?

A:The 10 AI platforms refer to a diverse set of customers, including those developing their own accelerators and hyperscalers integrating third-party accelerators into their AI servers.

Q:What is the opportunity for Astera in China?

A:Astera sees significant demand in China for PCI Express-based scale-up due to limitations in IP availability. The opportunity is indexed by the number of GPUs, with more GPUs leading to higher revenues from switching and retiming solutions.

Q:How does NVIDIA's shift to a cable-less design impact Astera's opportunity?

A:Astera's opportunity lies in hyperscaler customers customizing NVIDIA's GPU platforms for their infrastructure. The choice of cable versus PCB backplanes depends on the number of GPUs in the design.

Q:Review of Unclear Management Responses

A:Management avoided providing specific details on the average content uplift per XPU for Scorpio X engagements, the exact timing of when Scorpio X will overtake Aries in revenue, and the specific customer adoption rates for UALink versus PCIe protocols. Additionally, they did not elaborate on the rationale behind NVIDIA's design choices or provide detailed financial breakdowns for individual product lines.

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Earnings Word Cloud

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