Astera Labs, Inc. Common Stock (ALAB) Earnings

Management highlights

### AI Market & Strategic Positioning - Secular growth in AI infrastructure spending is accelerating, with industry forecasts projecting hyperscaler AI and cloud infrastructure spending will reach $1 trillion in 2027, driven by expanding sovereign AI initiatives, inference workloads, and global enterprise adoption. - The company's "AI Your Way" platform strategy offers flexible, purpose-built connectivity solutions that let customers optimize AI infrastructure for their specific workloads (standards-based/custom, copper/optical, scale-up/scale-out), which has become a key competitive advantage as the market diversifies. ### Product Milestones & Execution - Scorpio X Series high-radix AI fabric switches entered volume production in Q2, and will scale materially in the second half of 2026, one quarter ahead of prior expectations. Multiple configurations are already shipping to initial customers, with additional customer shipments planned by year-end. - Scorpio P Series continues to expand across multiple hyperscaler and AI infrastructure customers, with programs currently in pre-production and expected meaningful ramping in 2027. - Taurus launched the industry's first 200 gig per lane smart retimers and redrivers for next-generation Ethernet and UA-Link connectivity, doubling the Taurus portfolio's total addressable market to over $4 billion by 2030. - CXL adoption momentum has renewed, driven by demand for cost-effective memory expansion for memory-intensive agentic AI and inference workloads, with strong ecosystem engagement and expected additional design wins in coming quarters. ### Long-Term Growth Initiatives - Optical connectivity is a major new expansion vector that unlocks tens of billions of dollars in incremental TAM. Initial Tier 1 customer programs for high-density fiber solutions and near packaged optics (NPO) are targeted for volume production in 2027, with fully integrated co-packaged optics (CPO) enabled Scorpio switches planned for 2028 and beyond. - Custom connectivity solutions for diverse XPU architectures and workloads represent a multi-billion dollar incremental long-term opportunity, with initial custom shipments expected to begin in 2027. - The company's Cosmos software platform for Scorpio has expanded beyond basic fleet management to support dynamic traffic shaping, real-time performance management, and workload orchestration, increasing solution stickiness with customers. - Dollar content per XPU is expected to continue growing over time: Scorpio X Series content alone is projected to grow well beyond $1,000 per XPU in future AI platform generations, with further upside from additional optical, signal conditioning, and protocol transitions.

Guidance

- Q3 2026 revenue is expected to be in the range of $540 to $560 million, representing 40% sequential growth at the midpoint. The growth is driven by the volume production ramp of Scorpio X Series, continued strength in Aries PCIe 6 retimers, and pre-production shipments of 100 gig per lane Taurus solutions for 800 gig Ethernet. - Management confirms that Scorpio will become the company's largest product segment by revenue in Q3 2026, hitting this strategic milestone one quarter earlier than originally forecast. - Q3 2026 non-GAAP gross margin is expected to be approximately 72%. - Q3 2026 non-GAAP operating expenses are projected to be between $156 and $160 million, with non-GAAP operating margin expected to reach approximately 43%, up 400 basis points sequentially from Q2, driven by operating leverage from expanding revenue. - Q3 2026 non-GAAP fully diluted earnings per share is expected to be between $1.16 and $1.21. - Long-term, management expects gross margins to trend toward a 70% target as the product portfolio diversifies.

Segment performance

Total company revenue for Q2 2026 was a record $392.4 million, up 27% sequentially and 104% year-over-year. Non-GAAP gross margin was 73.7%, non-GAAP operating margin was 39.1%, and non-GAAP diluted EPS was 80 cents. - Scorpio (AI Fabric switches): Delivered strong Q2 growth. Scorpio P Series saw scaled existing customer deployments and early ramp of new programs; Scorpio X Series began shipping initial production volumes across multiple radix configurations. PCIe 6 products across the Scorpio and Aries segments represented more than 50% of total Q2 revenue, up from 33% in Q1. Scorpio is on track to become the company's largest product segment by revenue in Q3 2026. - Aries (signal conditioning/retimers): Achieved record quarterly revenue, driven by strong adoption of PCIe 6 retimers and gearboxes across both scale-up and scale-out AI and general-purpose compute platforms, alongside sustained ongoing demand for legacy PCIe 5 products from inference workloads. - Taurus (smart cable modules/connectivity): Grew strongly in Q2, driven by increased unit shipments across AI and general-purpose platforms. Pre-production volume of 100 gig per lane Taurus modules for 800 gig scale-out applications shipped in Q2, with a newly expanded 200 gig per lane portfolio launched during the quarter. - Leo (CXL memory controllers): Closed a new design win for the standard Leo memory controller at a U.S. hyperscaler in Q2, with volume shipments to two U.S. hyperscalers expected to begin in 2027 across general-purpose compute and AI inferencing applications. Leo currently contributes minimal revenue, with material ramping expected in 2027.

Risks & headwinds

- All forward-looking statements about future performance, strategies, and operations are inherently subject to unknown risks and uncertainties that could cause actual results to differ materially from current expectations, as detailed in the company's SEC filings, including its most recent Form 10-K. - The company undertakes no obligation to update forward-looking statements after the call, unless required by applicable law.

Analyst Q&A

• Q: When will additional hyperscaler customers ramp their Scorpio X volumes, and will Scorpio X exceed Scorpio P revenue in Q3? /

  A: The lead Scorpio X customer will ramp to high-volume production in Q3, and Scorpio X revenue will surpass Scorpio P revenue this quarter. Pre-production shipments have started for multiple other customers, with revenue shipments to additional customers expected by the end of 2026. Scorpio as a whole will become the company's largest product line in Q3 as planned, with broad traction across both X (scale-up) and P (multiple use case) variants. (278 characters)

• Q: What is driving Aries' record revenue, and what is the design traction outlook for retimers in next-generation AI servers? /

  A: Aries growth is driven by sustained ongoing demand for PCIe 5 retimers from fast-growing inference workloads, plus accelerating adoption of higher ASP, higher attach-rate PCIe 6 retimers for new AI platforms. This growth trend is expected to continue as new Gen 6 GPU and server platforms launch, and the cycle will extend to PCIe 7 in future generations, supporting long-term sustained growth for the Aries portfolio. (340 characters)

• Q: What is the UA-Link adoption outlook, and how will the transition from PCIe impact the company? /

  A: UA-Link has a growing, vibrant ecosystem with strong customer traction, driven by its higher throughput and lower latency compared to alternative protocols, especially for inference workloads. Astera is on track to launch UA-Link-enabled Scorpio X switches and supporting Taurus signal conditioning products in 2027 to align with next-gen XPU releases. The transition to UA-Link will increase dollar content per XPU, which is a favorable long-term trend for the company. (361 characters)

• Q: How does optical connectivity fit into Astera's product roadmap, and can copper-focused solutions like Taurus adapt to optical media? /

  A: Copper and optical will coexist for the foreseeable future, with copper remaining dominant for intra-rack scale-up connections for at least the next two generations, while optical will grow for multi-rack interconnections as cluster sizes increase. Astera has invested in optical development for multiple years, including the acquisition of Xscale Photonics, and is positioned to deliver optical components for NPO (2027 production) and CPO (2028+), including optically-enabled Taurus components and full Scorpio switches. This opens a tens of billions of dollar incremental TAM and increases dollar content per XPU. (472 characters)

• Q: What is Scorpio's gross margin profile, and how will it impact overall company margins as it grows? /

  A: Scorpio has a range of gross margins across X and P series driven by differing use cases and lane counts, but its average margin profile is broadly in line with the company's overall corporate gross margin. As Scorpio scales, gross margin dollars will flow through to the bottom line, as already seen in Q2 results and Q3 guidance. Overall company gross margins are expected to trend toward a long-term target of 70% as the portfolio diversifies. (321 characters)