AMD reported a double beat in Q1 with revenue of 36% and data center growth of 57%, with the beat filtering down to the bottom line with EPS growth of 55% — ahead of revenue. 

However, the excitement from the beat soon faded after hours as the earnings call Q&A was decisively about the impacts of China export controls. AMD is the first to report among the larger AI accelerator design companies this quarter, and the information shared offers a glimpse at the harsh reality that AI semiconductors face as these companies adjust to global tensions.   

For AMD, the impact of the MI308 being banned from China will be $700 million in Q2 and $1.5 billion in fiscal year 2025. This impact seems significant given AMD is $5B-ish in AI revenue, yet AMD assured analysts on the call their data center revenue would see “strong double-digit growth” this year despite declining sequentially in Q2.  

On the Client side, analysts were also concerned that perhaps AMD saw a pull-in ahead of tariffs as PCs (Client) reported 68% YoY growth, to which management assured analysts many times on the call that it was due to higher average sales prices. However, keep in mind, the chances AMD remains completely unscathed from a weaker consumer due to the cumulative effects of tariffs is unlikely. 

AMD’s Revenue Increases 36% YoY  

AMD reported Q1 revenue of $7.44 billion, solidly ahead of the $7.12 billion estimate and above the upper range of its guidance for $7.1 billion, +/- $300 million. Revenue growth accelerated to 35.9% YoY, led by data center and client, though this is expected to be the peak growth quarter for the year.  

For Q2, AMD guided revenue to be approximately flat QoQ at $7.4 billion, +/- $300 million. This represents YoY growth of 26.7% at midpoint, a more than 9 point sequential deceleration. Revenue growth is currently expected to decelerate further in 2H, with analysts estimating that AMD will exit 2025 with growth of just 12.3% YoY. 

What’s important to note is that estimates for the back half of the year have been revised quite a bit lower over the past three months as tariffs and export controls have set in. In February, Q3 and Q4 revenue growth was estimated to be 6-7 points higher at 23.2% YoY and 19.2% YoY.   

Export Controls Result in $700M Revenue Loss for Q2, $1.5B for FY2025 

It was welcomed that management quantified the export control impact to understand better how the company can weather the loss of revenue.  

Here is what the CFO stated in her opening remarks: 

“As a reminder, in April, a new export license requirement was put in place for MI308 shipments to China, the impact of which is included in our guidance. We expect revenue to be approximately $7.4 billion plus or minus $300 million. This includes an estimated $700 million revenue reduction as a result of the new export license requirement. Despite this headwind, the midpoint of our guidance represents 27% year-over-year revenue growth. 

For the full year 2025, we estimate the revenue impact due to the export license requirement to be approximately $1.5 billion.” 

On one hand, it is quite impressive AMD can overcome this impact and meet consensus for next quarter. On the other hand, analysts have been lowering estimates as AMD was supposed to see revenue of $7.77 billion for growth of 33% as of last October rather than the 26.7% in the current quarter.  

There were a few questions from analysts about the export license requirements, which are detailed below under the Q&A section.  

Key Segments 

Data Center to Decline Next Quarter 

Data Center revenue grew 57% YoY but declined (5%) QoQ to $3.67 billion, driven by sales of EPYC CPUs and Instinct GPUs, and accounting for over 49% of AMD’s revenue in the quarter. While growth decelerated from 69% in Q4, it’s coming against a much tougher comp at 80% YoY whereas Q4 of last year offered a lower comp of 38% in Q4 2023.  

AMD stated they gained market share again this quarter helped by EPYC 5th Gen Turin processors, which recently launched in October. EPYC-powered cloud instances doubled YoY among Forbes 2000 enterprises with on-prem growing by a “large double-digit percentage.” According to the opening remarks, there is “a clear path to continued share gains as customers ramp their 5th Gen EPYC offerings.” 

Regarding GPUs, management stated their AI revenue increased by a “significant double-digit percentage year-over-year.” The MI325X is shipping in volume while the next-gen Instinct MI350-series chips are on track for “accelerated production by mid-2025.” We discussed last quarter that AMD was pushing up their delivery on the MI350s to mid-year for relative competitiveness. That’s a nice way of saying while Blackwell is delayed, AMD will attempt to nibble at their market share with a more aggressive timeline on their next generation. In the slide presentation, AMD stated they are partnering with Oracle to deploy a large cluster of MI355X GPUs and 5th Gen EPYC CPUs.  

Data Center operating income was $932 million for a 25% margin, up from a 23% margin in the year ago quarter. However, it was 5 points lower sequentially and the lowest operating margin for the segment since last Q1. 

For Q2, data center will decline due to the MI308 revenue being excluded. When asked about future quarters, the CEO Lisa Su stated the DC segment would resume growth after Q2: “in Q2, it's not going to grow year-over-year just given what we've said about the $700 million coming out of Q2 and how we had previously talked about the evolution. But we do believe that we'll grow year-over-year going forward, in Q3 and Q4 certainly, for us to do the full year with strong double-digit growth.” 

Client & Gaming 

Client and Gaming revenue rose 28% YoY, driven by 68% YoY growth in client revenue to $2.29 billion as gaming revenue declined (30%) YoY to $647 million. Sequentially, Client revenue was down less than (1%) from Q4 while Gaming revenue rebounded 15% QoQ. AMD said the segment’s growth was driven by strong demand for Zen 5 Ryzen processors.  

Client revenue stood out in Q1, outpacing Data Center growth by more than 10 points YoY against its toughest comp in recent quarters at 85% YoY in Q1 2024. 

Analysts poked around quite a bit on whether the high growth rate from the Client segment was a pull-in to get ahead of tariffs. Management pushed back on it being from tariffs and stated it was due to average sales prices: “And in particular, on your question of Client performance, we've certainly looked very carefully at the ordering patterns and what customers are telling us. We have not seen a lot of tariff-related activity in that business. I would say, though, what we have seen is a real stronger mix and strength in our overall ASPs. So the desktop channel, which is an area where we have a very strong gaming products right now, actually performed well above seasonality in Q1, and that is really the strength of the ASPs there. So that's what we saw in Q1.”

Combined operating income for the two was $496 million for a 17% margin, up from a 10% margin in the year ago quarter. However, operating income was flat QoQ. 

Embedded  

Embedded revenue declined (3%) YoY and (11%) QoQ to $823 million. While in line with guidance for a modest decline, AMD noted that the YoY decline was due to mixed end market demand.  

Embedded operating income was $328 million for a 40% margin. 

Margins Steady, but Q2 to See Sharp Decline Due to China Export Controls 

While adjusted margins remained steady sequentially, AMD is taking a rather large hit in Q2 to their margins due to the MI308s. In mid-April, AMD flagged an $800 million hit from charges related to inventory, purchase commitments and related reserves, and as a result, guided adjusted gross margin to contract rather sharply. This will weigh heavily on adjusted operating margin in Q2. 

• Q1 GAAP gross margin was 50%, up 3 points YoY, while adjusted gross margin was 54%, up 2 points YoY. 
• GAAP operating margin was 11%, a strong expansion of 10 points YoY, and adjusted operating margin was 24%, up 3 points YoY.  
• GAAP net margin as 9%, up 7 points YoY, and adjusted net margin was 21%, up 2 points YoY. 

For Q2, including the $800 million impact, AMD guided for a 43% adjusted gross margin (or 54% excluding it). With management forecasting operating expenses of ~$2.3 billion in Q2, adjusted operating income including the charge would be projected at $882 million for a 12% margin.  

Excluding the impact (at that 54% adjusted gross margin), AMD’s expense guide would see adjusted operating margin at 23%, down 1 point QoQ.  

EPS Posts Slight Beat in Q1

AMD reported adjusted EPS of $0.96 in Q1, slightly ahead of estimates for $0.93. This represented YoY growth of 54.8%, accelerating from nearly 42% growth last quarter.  

Similar to revenue, Q1 is currently expected to be peak growth for EPS, with Q2 estimated to record 27.8% growth before slowing to the low 20% level by Q4. However, management commented that EPS growth is expected to grow much faster than revenue in Q2: “Looking at Q2, at the middle point of our guidance, revenue will be increasing 27%, and we do expect the earnings per share growing much faster than the top line revenue growth.” 

Cash and Balance Sheet 

AMD closed its acquisition of ZT Systems in Q1, which added more than $2 billion to both its cash and debt. Cash flow margins also expanded YoY with margins remaining in the double digits. 

• Operating cash flow was $939 million for a 13% margin, expanding from a 10% margin in the year ago quarter.  
• Free cash flow was $727 million for a 10% margin, expanding from a 7% margin a year ago. 
• Cash and short-term investments increased nearly $2.2 billion to $7.31 billion, while debt rose more than $2.4 billion to $4.16 billion. 
• Adjusted EBITDA was $1.95 billion for a 26% margin. 
• Inventories were $6.42 billion, up from $5.74 billion last quarter. 

When asked about inventory, AMD stated it was due to preparing for the H2 ramp: “Well, on the inventory side, we built some inventory primarily to support very strong client and server ramp and also the second half Data Center GPU ramp. As you probably know, the lead time is really long to build. For the Q3, Q4 ramp, we really need to start the wafers right now. That's why the inventory has increased.” 

Earnings Call Q&A: 

MI350s and MI400s: 

AMD is poised to become a stronger contender in the next two generations of Instinct GPUs.  The MI350s will launch this quarter and the MI400s will launch in 2026. The MI350s feature the CDNA 4 architecture and will increase memory capacity and bandwidth by 1.5X with 288GB of HBM3e, and support for 35X higher throughput for better inference performance than the previous generation MI300Xs. Built on TSMC’s 3nm node, the MI350s also offer better efficiency and a 7X increase in AI compute capabilities.  

The MI400s will offer a rack-scale architecture, assisted by AMD's acquisition of ZT Systems, a company that specializes in complex server designs. The MI400 will feature CDNA Next architecture with multiple chiplets and separate active interposers, with rumors the MI400s will be designed to increase data flow efficiency.  

With the MI400s, AMD will be tasked with launching rack scale systems more smoothly than what we’ve seen from Nvidia these past two quarters. Here is what was said on the call in terms of the MI400 potentially closing the gap competitively with Nvidia – notably, AMD and all AI accelerators will remain in second place into the foreseeable future, yet the MI400 could be the moment when AMD becomes a firm second place winner. 

“I think, look, we're excited about the MI350 Series launch that's coming up, but we are extremely excited as well about the MI400 Series and the road map there. I think we've been very active with customers on our road map. As you know, this is one of those areas where you absolutely have to be planning many quarters in advance for that. One of the primary reasons we acquired ZT Systems was exactly to address this rack-scale architecture.”

Export Controls and AI Diffusion Rules: 

There was a question about the overall TAM of the AI market given China will no longer be a customer, and about the AI diffusion rules that have a deadline of May 15th to establish new rules. Lisa Su does not think China affects the $500B TAM she originally stated a few quarters ago, stating: “I think we always expected that there would be some amount of, let's call it, limitation on sort of leading-edge GPUs going into China. So that was factored in to our TAM expectation when we talked about $500 billion. So I don't think that dramatically changes the TAM.” 

However, when it comes to AI diffusion rules, she was not as definitive as to the impact: “At the end of the day, when we look at sort of the U.S. AI companies, we have leading-edge technology. We want to ensure that the rest of the world can really use us as the primary platform. So I think it will be important to work through the AI diffusion rules and all of that as we think about longer-term TAM.” 

Management Adamant Client Revenue is from Higher ASPs: 

There were a few opportunities where management declined to connect higher Client growth to tariffs, and rather was adamant it’s from the strength of their product portfolio. AMD is being quite bold to state they are not seeing an impact from tariffs and do not expect to see a meaningful impact. Here is one of the exchanges in the Q&A: 

CJ Muse: 

I wanted to revisit your assumptions around Client. If you were to just flatline the Q1 actual, you would grow the business about 30%. You're obviously very bullish on taking share. You talked about huge tailwinds from ASPs. But curious, when you put it all together, how should we think about traditional seasonality into the second half, particularly with the potential of some pull-ins here in the first half? 

Lisa Su: 

Sure, C.J. It's a fair question. Look, we want to be very clear that our Client business performance is primarily driven by the strength of the product portfolio. And it's driven by some of the desktop channel products that traditionally are not so well tracked if you look at sort of the IDCs of the world. We are planning for, let's call it, second half sub-seasonal given that we're off to such a strong start in the first half of the year. And that is what we're putting into our sort of internal planning number. So you wouldn't see necessarily typical seasonality since the first half is better than seasonal. 

That being the case, I think we feel strongly that, from a consumption basis standpoint, we see the data. So when we look at the Q1 performance, it was a very, very strong Q1 in terms of sell-out and consumption for our desktop business. And as we start Q2, we're now 4 weeks into it, we see those patterns continuing. So we're in an upgrade cycle right now. Gaming CPUs are usually repurchased when there are gaming GPUs that come out in new cycles. And I think we're benefiting from that on both the CPU and the GPU side, which is great. I mean, we're very happy with that, and we're ramping up production to ensure that we keep the channel full. 

Conclusion: 

AMD put up a solid report for Q1 on all accounts, yet the industry-wide headwinds that will take effect in Q2 introduce uncertainty for the semiconductor sector as a whole. Of the companies that will be affected, AMD is communicating they are ready to weather the storm. In data center CPUs, they have one of the most underrated products of all time – EPYC CPUs which continue to take substantial market share. In AI, they have a solid line up with the MI350s expected to launch this quarter to help offset the weight of losing China – in fact, by Q4, AMD is forecasting the loss of China revenue will be fully absorbed and there will be no impact by the time year closes out. In Client, they have some of the strongest AI PCs on the market and are confident average sales prices will remain above industry average for 2025. 

However, AMD is a semiconductor stock in the center of a massive shift to supply chains and is in the crosshairs of a geopolitical war that will be defined by policies surrounding AI. It’s not a matter of if there will be rules that change how AI chips/components are exported, rather how severe those rules will be. Investors should be prepared for volatility as AI Diffusion rules will be set on or around May 15th.  

I believe we will see near-term volatility but that ultimately AI companies in the United States will emerge stronger than they are today as we are all finally acknowledging that AI is not a fad, or a buzzword. Rather, the future of the country’s dominance relies on this technology succeeding, and conversely, relies on United States AI companies strategically denying AI systems to other countries. As an investor, you will never get a clearer signal as to the importance of a technology. 

Overall, given volatility could be in our future as AI investors, this is a stock to watch closely should we get an even lower valuation, especially given where it's trading today is already quite cheap.

Please note: The I/O Fund conducts research and draws conclusions for the company’s portfolio. We then share that information with our readers and offer real-time trade notifications. This is not a guarantee of a stock’s performance and it is not financial advice. Please consult your personal financial advisor before buying any stock in the companies mentioned in this analysis. Beth Kindig and the I/O Fund own shares in AMD at the time of writing and may own stocks pictured in the charts.

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Astera Labs reported an impressive beat and raise in Q1, with GAAP margins strengthening as revenue continues to grow at a triple-digit rate. On top of this impressive beat, the growth story for Astera Labs is only beginning. The commentary regarding their product diversification and higher dollar content going into the second half of the year was quite clear as to the growing opportunity this company is poised to capture. 

Primarily, Astera offers unique positioning that allows them to capture both the merchant GPU market and custom silicon market across its three products lines Astera, Taurus and Scorpio. This widens the TAM and allows for steady revenue growth despite hiccups or delays from a single AI system (which we’ve seen plenty of disruption recently across those with high customer concentration with Nvidia).  

In addition to being a strong custom silicon vendor for hyperscalers, Astera will participate in Blackwell once it (finally) ships in volume as the company offers PCIe scale-out and Ethernet scale-up. Their new products Scorpio P-Series and Scorpio X-Series are fabric switches that are particularly well-suited for the immense demand that is expected for customization of racks as architectures scale-up in the second half of the year and beyond. 

Notably, Aries PCIe retimers and Taurus Ethernet smart cable modules are driving the revenue today with the Scorpio P-Series beginning to ramp. However, there are many catalysts on the horizon for Astera which adds to the trifecta of a strong growth story: 

• Serving both ASICs and GPUs greatly increases TAM and diversifies revenue; rare in the AI systems ecosystem 
• Preparing to serve the scale-out demand with increasing higher dollar content; specifically on Scorpio but also on Aries 
• Offering strong cross-sell opportunities as it aims to be the first to solve unique challenges for both GPU and custom silicon utilization – and is solving these issues in a way that avoids vendor lock-in for the large hyperscalers who want a mix of both custom silicon and merchant GPUs (Nvidia or AMD). 

Below, we look at Astera’s exceptional earnings report and provide notable commentary as to why Astera’s streak is likely to continue for some time. 

Revenue Grows 144% in Q1 

Astera Labs reported a blazing 144.3% YoY revenue growth in Q1 to $159.4 million, topping analyst estimates for $151.5 million in the quarter. Management said they witnessed strong demand for PCIe scale-up and Ethernet scale-out solutions for custom ASIC platforms, with initial shipments starting for its Scorpio P-Series and Aries 6 retimers in merchant GPUs. 

For Q2, Astera delivered a solid raise at $170 to $175 million, more than 7% ahead of the $160 million estimate. This points to YoY growth of 124.5% at midpoint, ahead of estimates for just 108% YoY.  

Astera has seen revenue growth decelerate over the past few quarters, with growth expected to continue decelerating as Astera laps its rapid ramp quarters. What’s impressive about this ramp is that Astera is guiding to deliver this 125% growth in Q2 against its 619% YoY comp (against a small base), for its seventh-straight triple-digit growth quarter.  

For the full-year, Astera did not provide a guide, though estimates heading into Q1’s report were pointing to 70.4% YoY growth to $675.2 million in revenue. However, given that Q1 and Q2 have combined for a $20 million beat compared to current estimates, it’s likely that full-year revenue estimates will likely move closer to (or above) $700 million in the coming days. This would correspond to YoY growth of nearly 77%. 

According to discussions on the call, management is being conservative in their guidance, stating they have more visibility than most as they are closer to their lead GPU customer (Nvidia) with hints that the larger systems will start shipping preproduction volumes at the end of this quarter.  “I think the — so we will always continue to be conservative, just to underline what Jitendra said. But having said that, the revenue models and the guidance that we are providing or the outlook that we're sharing comprehends all this because we are so close to this customer that we see a lot of stuff, and we're able to consider and contemplate that when we provide guidance.” 

Margins: Astera Becomes GAAP Profitable 

Astera is making considerable progress on strengthening its GAAP operating margin, having guided for a (0.2%) margin in Q1 but reporting a 7.1% margin. This also marks a strong 15 point expansion in just 2 quarters. Elevated SBC at nearly 28% of revenue in Q1 is behind the wide disconnect between GAAP and adjusted margins, though it signals strong GAAP profitability potential in the coming quarters/years as revenue continues to scale. 

• Q1 gross margin was 74.9%, ahead of guidance for 74%. 
• GAAP operating margin was 7.1%, well ahead of guidance for (0.2%) and up from 0.1% in the prior quarter. Adjusted operating margin was 33.7%, up more than 14 points from 24.3% in the year ago quarter but down from 34.3% last quarter. 
• GAAP net margin was 20%, expanding nearly 30 points in three quarters. Adjusted net margin was 37.4%, up more than 15 points from 22% in the year ago quarter but down nearly 10 points sequentially. 

Astera is guiding for margins to remain strong in Q2, with GAAP operating margin expanding. Gross margin was guided at 74% once again, while GAAP operating margin is forecast at 7.9%, up 0.8 points sequentially. Adjusted operating margin is forecast to contract 2.6 points QoQ to 31.1%.  

The company foresees gross margin being stronger in the second half, yet was careful to temper the market expectations by stating gross margin goal is to remain above 70%. “So with that wider range of margins, we still expect our longer-term gross margin targets of 70% to be the direction we're heading, not this year, but over time. So I would still encourage people to think about the margins as we grow the company to trend towards 70%.” 

EPS

Astera delivered an impressive 350% beat to GAAP EPS estimates in Q1, driven by its operating margin expansion, while forecasting EPS above estimates for Q2. 

• Adjusted EPS of $0.33 beat estimates by $0.05, representing YoY growth of 230%. 
• GAAP EPS of $0.18 beat estimates by $0.14, improving from $0.14 in Q4 and marking its second straight quarter of GAAP profitability on the bottom line. 

For Q3, Astera guided for adjusted EPS between $0.32 and $0.33, approximately flat QoQ but up 150% YoY at midpoint. GAAP EPS was guided at $0.10 to $0.11, what would be a third consecutive quarter of GAAP profitability albeit down (42%) QoQ.  

For the full-year, analysts currently expect Astera to report 50% YoY growth to $1.26 in adjusted EPS, with FY26 EPS growing 36% to $1.72. Heading into Q1’s report, GAAP EPS was expected to be $0.29 for the full-year, but considering Astera is guiding to deliver that figure in 1H, estimates are likely to move substantially higher.  

Cash Flows and Balance Sheet 

Cash flow margins expanded slightly YoY, though inventories rose and accounts receivable doubled sequentially. 

• Operating cash flow was $10.5 million for a 6.6% margin, expanding slightly from a 5.6% margin in the year ago quarter. 
• Free cash flow was $6.0 million, for a 3.7% margin, improving from a 0.3% margin in the year ago quarter. 
• Cash and equivalents increased $11.1 million QoQ to $925.4 million, while debt remained zero. 
• Inventories rose 18.2% QoQ to $51.1 million, likely driven by the ramp of Astera’s Aries 6 and Scorpio P-series products. 
• Accounts receivable surged 100.5% QoQ to $69.8 million, driven by Astera’s largest customers. Astera’s receivable balance from its top customer in the quarter rose 363% QoQ to $20.9 million, while its balances from its second and third largest customers rose 75% and 90% QoQ to $14.7 million each. Days sales outstanding also increased from 20-ish days in the past to 40 days this quarter. This is likely foreshadowing Astera is preparing for larger shipments in the next 1-2 quarters. 

Customer Concentration and China Revenue  

Astera is diversifying its customer base beyond its two largest customers, though it remains quite concentrated with its top four customers accounting for 80% of its Q1 revenue and its top two customers accounting for 49% of revenue. Although Astera does not disclose the exact customers, at one point, their largest customerwas AWS. 

SEC filings show that China revenue has been growing as a percentage of revenue from under 15% in Q3, then surged to 35% in Q4, and remaining elevated at 28% in Q1. FY24 exposure was 18.3%, up from <5% in FY23 

However, on the call, management stated it was less than 10% of revenue. Perhaps the difference being end market customer is less than 10% yet manufacturing in China represents a larger portion. Addressing this difference in the SEC filing on the call would have been ideal.  

Thomas O'Malley   Barclays Bank 

First one is for you, Mike. You mentioned that there was a China impact on your sales. It's never been a significant portion of your model. But could you give us a feeling just how large that impact was and what that impact will be over the next couple of quarters? 

Michael Tate   CFO 

Yes. So we ship into China with our retimers predominantly right now and they were attached to third-party merchant GPU systems, both were restricted hard stop during the quarter. So there was a modest impact that we have to overcome. 

China revenues, when you look at end customer demand, is less than 10% of our revenues. So it's been manageable enough and given the strength of our business and other product lines to continue to grow through this challenge. 

Earnings Call Q&A: 

Higher Dollar Content from Scorpio-X and Aries PCIe6 Retimers 

As growth investors, we are always looking for a catalyst that can sustain growth, or ideally, accelerate growth. For semiconductors and hardware components, there is no better catalyst than incoming higher dollar content for hardware companies. 

Therefore, Astera Labs used these words many times on their call. Diving into the details of this, it’s primarily two products where they are forecasting higher dollar content and average sales prices (ASPs): 

Aries PCIe6 retimers:  

The transition from PCIe5 to PCIe6 will result in higher unit growth and higher ASPs including a gearbox that improves signal quality. PCIe 6 doubles the bandwidth from the 5th generation, with up to 256 GB/s of bandwidth per lane, which will require faster supporting components, such as the retimers that Astera Labs offers. 

Here is what was stated on the call: “In fact, we have already started shipping preproduction volume for supporting some of the opportunities. And this would, again, not create an additional TAM to our Aries business because it's adding to the retimer TAM, but essentially bringing in a higher level of ASP simply because you're able to not only do retiming, but also do some of the speed matching that I noted.” 

Scorpio X-Series:  

The Scorpio P-Series is shipping this quarter and are qualified for Nvidia systems, yet the X-Series will ship in H2 with a bigger opportunity for custom silicon clusters. The Scorpio P-Series is a small chip that connects the CPU, GPU, NIC and NVMe storage. Rather than building a large switch, the company built a smaller device that is more efficient for high-speed signals to help feed GPUs with data. The fewer ports and smaller switch decrease complexity in a bid to compete against Broadcom with twice the lane count. 

The X-Series is for back-end networking in GPU-to-GPU configurations (and custom silicon configurations), and will offer a higher port count. Astera is essentially building something similar to Nvidia’s NVSwitch with the X-Series, but for PCIe-enabled GPUs and ASICs. Per the last earnings call: “And this one, like Mike noted, it's a greenfield use case, meaning if you keep Nvidia and NV Switch aside, everyone else is starting to build configurations that are obviously going to need some kind of a switching functionality, which is what we are addressing with our X Series device.”  

The X-Series improves efficiency for ever-increasing AI cluster sizes. The majority of AI clusters are in the tens of thousands GPUs, but are expected to go to the hundreds of thousands (already has with X and some other Big Tech companies), and will see AI clusters with millions of GPUs over the next couple of years. 

In an effort to identify a catalyst that can sustain Astera’s exceptional growth, it would be this product that does so. The X-series is used to interconnect GPUs for higher GPU utilization, resulting in higher ASPs. Per the call: “So to that standpoint, X-Series does bring in a lot more value, and therefore, you can assume that the ASPs tend to be significantly higher. And that's — again, there are different — the X-Series is not one device, to be very clear, there are multiple part numbers. So there would be situations where maybe one part number is not at the same level as P-Series. But in general, you can just look at it from a per lane standpoint or per port standpoint, and look at the value delivered.  And on that basis, the X-Series will always be a much more valuable, much more higher ASP product than a P-Series. 

Notably, Astera maintains their largest opportunity for the X-Series is on the custom silicon side although they foresee hyperscalers wanting to customize their racks in a way that prevents vendor lock-in from both Nvidia and Broadcom.  

“So these are fabric switches that are used to interconnect multiple accelerators together. So to that standpoint, a, it's not only a significant dollar opportunity because the ASP of this product tends to be high. But these are also products that are turning out to be anchor sockets for us. If you think of an AI rack being built, you have the accelerators and then you have the fabric that interconnects the accelerators.   

So what we are transitioning and what we're excited about is that the Scorpio X device is now translating to be an anchor socket. Think of it as like a mothership around which we are able to now add a lot more products that go along with it, whether it's the silicon level products or module or other form factors that we're considering.   

So overall, I want to say that from an opportunity space standpoint, for Astera, the custom ASIC-based implementation tends to offer a lot more opportunities.” 

We’ve covered Astera’s products more in-depth in previous analysis here and here.here and here. 

Scale-Up will Drive More Revenue 

As we’ve discussed in great detail in previous analysis on Blackwell, scale-up architectures combine many GPUs or custom chips into one system with dozens of AI accelerators and soon hundreds of AI accelerators communicating in one cluster.  

In line with Scorpio-X being a strong catalyst for the company, management double-downed on why scale-up is a massive opportunity for their products specifically, stating it will result in “hundreds of dollars per accelerator and serve as an anchor socket for integrating additional Astera Labs solutions.” They also stated “increasing accelerator cluster sizes, faster interconnect requirements and overall system complexity challenges are creating substantial dollar content opportunities.” 

Given they provided an idea as to the dollar amount per accelerator, there was a question on the call relating to this. Again, I’m pulling out this exchange because a hypergrowth stock like Astera certainly needs additional forward-looking growth opportunities to justify it being in our portfolio – of which I believe scale-up opportunities satisfies this requirement.  

Blayne Curtis   Jefferies 

I wanted to talk about scale up. You mentioned it several times. I think you even said a couple of hundred dollars per accelerator. Today, I think you're selling some retimers and then some PCIe cabling. Can you walk us through the progression of scale up in your participation and kind of can you maybe set some timing? Because I know UAL is probably later next year. So what's the scale-up opportunity for you in between now and then? 

Jitendra Mohan   Co-Founder, CEO & Executive Director 

Blayne, this is Jitendra. Scale up presents a very good opportunity for us. As you know, so far, our revenues have been driven primarily by scale-out opportunities. But for the first half, as Sanjay laid out, we have a significant contribution from scale-up.  

And the reason that's so important for us is scale up is really a very rich opportunity of high-speed interconnects that need to deliver low latency and high throughput. And that's where we play today with our Aries retimer products and starting shipments of Scorpio X family.  

And we do expect this opportunity to continue to grow as cluster sizes grow and the data rates increase. So we have significant opportunities that we are working on for PCI Express based scale-up networks based on our current Scorpio X family.  

But then it also dovetails very nicely into UAL, and we expect this to be a multibillion-dollar opportunity as we provide a full holistic portfolio of devices to address UAL infrastructure.  

And as far as the UAL itself is concerned, the spec is not final. It's been released as the 1.0 spec. And so you can imagine that the products will start to be worked on now and start to see first samples in 2026 with the revenue contribution the following year. So that is a very big opportunity that we are very well positioned to take advantage of. 

Commentary on Blackwell Delay 

I’m certainly liking Astera’s commentary a lot better this quarter than last quarter in terms of us-Nvidia bulls being closer to the bigger Blackwell moment – although I will say it’s unclear right now if Nvidia will go more directly to Blackwell Ultra and skip the more problematic Blackwell NVL system SKUs (I will cover the scenarios as to how we get to H2 pre-earnings). To provide a preview, I have zero expectations that Nvidia’s Q1 will be a good report, instead, we are looking toward the August call and the October call as the stronger moments for AI this year.  

Regardless, Astera is one to watch in terms of getting commentary on when we can expect Nvidia’s next catalyst – and we are getting a yellow light improved from a red light last quarter. I believe next quarter will be the green light: all systems go. But this requires patience as this puts us into late summer/early Fall but should be fully resolved by the Q4 time frame. 

As noted in the past, the PCIe6 retimers are especially indicative of when Nvidia’s Blackwell systems are shipping. Per our previous analysis “PCIe 6.0 was expected to ramp with support initially offered in the GB200s. Back in March, Astera demo’ed PCIe 6.0 for a wide range of Blackwell products. 

There was also indication back in the August call that Gen 6 was confirmed to be used in Blackwell’s GB200, and there were initial shipments: “We have started shipping initial quantities of preproduction orders of our PCIe Gen 6 solution, Aries 6. We ship and support our hyperscaler customers initial program developments that are based on Nvidia's Blackwell platform, including GB200.” 

The Scorpio P-Series is also integrated into Nvidia’s Blackwell MGX systems per a recent announcement. Perhaps the strongest comment on the call regarding Nvidia timing was this: “Looking ahead to Q2, we anticipate accelerated shipments of Scorpio P-Series switches and Aries 6 retimers on customized rack scale AI platform based on market-leading GPUs. Additionally, we continue to identify further opportunities for Scorpio P-Series outside of rack scale systems with multiple engagements on modular topologies that support enhanced customization.” 

In the opening remarks, it was also stated: “I'm excited to share that we will begin shipping preproduction volumes for Scorpio X-Series starting late this quarter” and later it was expanded on: 

Sanjay Gajendra   Co-Founder, President, COO & Director 

“And then on the — Yes. On the customer on the business side, just to touch on that question that you asked. The great thing about our overall revenue profile is that there are multiple ways in which we are approaching the market, the diversity across both custom ASIC-based platforms versus merchant GPU-based platforms, scale up versus scale out and the multiple product lines that we have enables us to approach the market in many different ways.  

And to that standpoint, for us, for first half, what we are expecting is that our revenue would be driven largely by the PCIe scale-up and the Ethernet scale-out opportunities along with the initial shipment of Scorpio P-Series and Aries 6 going into the customized rack.  

And second half, of course, lays nicely on top with some of the production ramps that we're expecting with the customized racks, which again, for us, is the Scorpio switches, along with the PCIe 6 retimers.  

These are now qualified. So we are starting to see that shipments start becoming significant. So that's part of the second half, and second half, of course, we have CXL initial shipments that we're expecting for production volumes and the Scorpio X switches for the scale up going into the custom ASICs.  

Those are also expected to start hitting production — initial production volumes in the second half of this year, which essentially gives us multiple ways, if you will, and sets us up nicely for future revenue growth even beyond '25.” 

Conclusion: 

The market reaction on Astera may be muted, but I’m liking this report much better than last quarter. The commentary around H2 is becoming clearer and in terms of a holding period, 6-9 months is a brief period of time to wait if the stars are aligning across the suppliers.  

I do not have high expectations (at all) for Nvidia’s Q1 but Astera is one piece of the puzzle pointing toward our AI portfolio leading again come August, and then October, and perhaps it’s a big enough splash that the streak continues into January and beyond as well. We will take this one quarter at a time, but I’m hearing what I want to hear, and that’s a sigh of relief. Keep in mind, the I/O Fund strives to be early so do not expect the market to agree with me immediately. 

Of course, the path to Q2 earnings calls in July/August and then Q3 calls in Oct/Nov will be incredibly tricky as semiconductors are in the hot seat for global tensions. I’d expect near-term volatility in AI hardware stocks that eventually resolves in our favor. While many are likely nervous about how semiconductors fare, I’m excited as we are quite clear on what to buy and I will be happy to get these stocks on discount if the market is foolish enough to give it to us. 

p.s. excuse the typos as our team is in a fast sprint covering many earnings reports this week 

Please note: The I/O Fund conducts research and draws conclusions for the Fund’s positions. We then share that information with our readers. This is not a guarantee of a stock’s performance. Please consult your personal financial advisor before buying any stock in the companies mentioned in this analysis.

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