Astera Labs' Q3 2025: Contradictions in UALink Traction, Scorpio X Timelines, and Optical Revenue Projections

Date of Call: November 4, 2025

Financials Results

• Revenue: $230.6M, up 20% sequentially and up 104% YOY
• EPS: $0.49 non-GAAP diluted EPS
• Gross Margin: 76.4% non-GAAP gross margin, up 40 basis points sequentially
• Operating Margin: 41.7% non-GAAP operating margin, up 250 basis points sequentially

Guidance:

• Q4 revenue expected $245M–$253M, up ~6%–10% QoQ
• Q4 non‑GAAP gross margin ~75% (mix shift to Taurus hardware/modules)
• Q4 non‑GAAP operating expenses expected $85M–$90M
• Interest income ~ $11M; non‑GAAP tax rate ~15%; diluted share count ~183M
• Q4 non‑GAAP EPS ~ $0.51
• Expect growth across Aries, Taurus and Scorpio; Scorpio X initial volumes in Q4 with material ramp in 2026
• Xscale Photonics acquisition to enable future optical scale‑up products; material optical revenues earliest 2028–2029

Business Commentary:

* Revenue and Profitability Growth: - Astera Labs reported quarterly revenue of $230.6 million for Q3 2025, up 20% from the prior quarter and 104% higher year-on-year. - The growth was driven by strong demand across signal conditioning, smart cable module, and switch fabric products, as well as new design wins with major hyperscalers.

• AI Infrastructure and Open Standards:
• The adoption of AI Infrastructure 2.0, involving ultra-low latency all-to-all connectivity and open standards, is being driven by significant CapEx investments in large-scale AI infrastructure by top U.S. hyperscalers.

• Astera Labs is positioned to capitalize on this trend by advancing its intelligent connectivity platform and aligning with open standards like UALink to promote interoperability and innovation.

• Product Line Expansion and Customer Diversification:

• The Scorpio P and X-Series products are anticipated to contribute significantly to revenue growth as they shift to high-volume production, particularly the Scorpio X-Series in 2026.

• The company has engaged with over 10 AI platform providers, expecting a steady ramp of these products over multiple generations, indicating a diverse and growing customer base.

• Optical Scale-up Opportunities:

• Astera Labs entered into a definitive agreement to acquire Xscale Photonics to develop photonic scale-up solutions, aiming for a large market associated with scale-up photonics.
• The acquisition is expected to enable future Scorpio scale-up switches to be optically enhanced, offering higher data rates and longer reach in scale-up domains, with revenue materializing in the 2028-2029 timeframe.

  Sentiment Analysis:

  Overall Tone: Positive

  • Management: "delivered strong results" with revenue $230.6M (up 104% YOY) and record non‑GAAP operating margin of 41.7%. CFO noted Q3 EPS $0.49 and Q4 revenue guidance of $245M–$253M. Company announced acquisition of Xscale Photonics and highlighted multiple new design wins and production ramps for Scorpio P/X and Aries, signaling strong near‑ and mid‑term demand.

Q&A:

• Question from Harlan Sur (JPMorgan Chase & Co): Post the UALink 1.0 spec and other Ethernet‑based scale‑up announcements, has your design‑win pipeline changed since the last earnings; are engagements with GPUs/XPUs still intact or expanded?
  Response: Engagements have expanded — Astera is engaged with 10+ AI platform providers, PCIe‑based scale‑up ramps into production in 2026, and meaningful UALink revenues are expected beginning in 2027.

• Question from Harlan Sur (JPMorgan Chase & Co): For Scorpio X engagements, what percentage also adopt your retimers, AEC or optical cable modules and what's the average content uplift per XPU?
  Response: Being in the scale‑up socket drives cross‑sell of retimers, gearboxes and controllers; dollar content can scale to multiple thousands per accelerator/rack.

• Question from Ross Seymore (Deutsche Bank AG): How is the Scorpio business diversifying across customers and products, and will Scorpio X reintroduce concentration or further diversify the business?
  Response: Scorpio is diversifying across >10 platform engagements including third‑party GPUs and custom accelerators; Scorpio X broadens opportunities rather than increasing concentration.

• Question from Ross Seymore (Deutsche Bank AG): What are the puts and takes that could drive gross margin from mid‑70s down toward 70% over time?
  Response: Hardware/modules (e.g., smart cable modules) are margin‑dilutive versus silicon; mix variability will pressure margin at times, but management expects long‑term model around 70% with operating leverage as revenue grows.

• Question from Blayne Curtis (Jefferies LLC): You beat significantly—what specifically drove the beat and what changed during the quarter?
  Response: Broad‑based strength across all three product lines (Scorpio, Aries, Taurus) from several new complex customer programs drove the upside.

• Question from Blayne Curtis (Jefferies LLC): As ASIC platforms/ASIC‑based designs ramp, how should we think about Aries relative to current retimer content?
  Response: Aries will continue to grow materially, but Scorpio (higher‑ASP sockets) is expected to overtake Aries in revenue in 2026 as larger sockets ramp.

• Question from Tore Svanberg (Stifel): On the Xscale Photonics acquisition and optical scale‑up market — why now and when should we expect material optical revenue?
  Response: Xscale adds critical fiber‑chip coupling/packaging capabilities; Astera views optical as additive and expects material scale‑up optical revenues earliest in 2028–2029.

• Question from Tore Svanberg (Stifel): Is Taurus 400G growth diversified across customers and when will 800G inflect in revenue?
  Response: 400G growth is across multiple customers via smart cable modules; 800G revenue impact and qualifications are expected to start ramping in early 2026.

• Question from Mehdi Hosseini (Susquehanna): You noted Scorpio ~10% of revenue target — does that imply Scorpio closer to 20% in the December quarter?
  Response: 10% referred to full year; exit/quarterly rate near December is expected to be closer to ~20%.

• Question from Mehdi Hosseini (Susquehanna): With P ramping in spring next year, will X contribution accelerate then?
  Response: Scorpio P will continue growing this year; X‑Series is at low initial volumes now and will ramp materially in 2026 and could ultimately be larger than P.

• Question from Mehdi Hosseini (Susquehanna): Clarify what you mean by '10 AI platforms' — does that mean 10 CSPs or 10 customers?
  Response: '10 AI platforms' includes both customers developing their own accelerators and hyperscalers integrating third‑party accelerators.

• Question from Quinn Bolton (Needham & Company): To build a full scale‑up CPO optical solution you need silicon photonics — will you develop that in‑house or acquire?
  Response: Full optical needs electrical IC, photonic chip and packaging; Xscale solves packaging/coupling, Astera will leverage internal electrical expertise, build photonics capability and remain open to third‑party photonics as needed.

• Question from Quinn Bolton (Needham & Company): Are the Scorpio X shipments this quarter preproduction samples or production builds?
  Response: These are initial production builds shipping end of year with the major volume ramp occurring in 2026.

• Question from Sean O'Loughlin (TD Cowen): How big a step is PCIe→UALink in silicon complexity versus firmware/SDK, and how do you derisk customer transition?
  Response: UALink requires new chips but Scorpio X architecture and COSMOS software reuse heavily; UALink is an evolutionary, memory‑semantic protocol easing customer software transition.

• Question from Sean O'Loughlin (TD Cowen): The >20% PCIe Gen6 revenue comment — was that inclusive of Scorpio P and Aries?
  Response: Yes — Gen6 revenues exceeding 20% include both Scorpio (P) and Aries Gen6 products.

• Question from Sujeeva De Silva (ROTH Capital): Does bandwidth or XPU density push customers faster to optical, and which is the primary driver?
  Response: Customers prefer copper until power/density forces disaggregation across racks; when multi‑rack scale is required optical becomes necessary — expected to translate to revenues in 2028–2029.

• Question from Sujeeva De Silva (ROTH Capital): Are any of the 10 POC customers pursuing Ethernet‑based scale‑up with you or working on an Ethernet stack?
  Response: Most current engagements are PCIe‑like; Scorpio X supports PCIe and can upgrade to UALink, and management emphasizes data/management functions that are protocol‑agnostic.

• Question from Sebastien Cyrus Naji (William Blair): What's the opportunity in China and willingness of Chinese hyperscalers to adopt open technologies like PCIe/UALink?
  Response: China shows strong demand for PCIe‑based scale‑up due to IP constraints at higher data rates, leading to more GPUs per cluster and larger addressable revenue per deployment.

• Question from Sebastien Cyrus Naji (William Blair): Does NVIDIA's move to cable‑less Rubin servers change Astera's opportunity with Aries or Taurus?
  Response: Design choices like cable‑less vs backplane depend on customer customization; Astera's opportunity remains when hyperscalers customize GPU platforms for their infrastructures.

Contradiction Point 1

UALink Market Traction

It involves differing perspectives on the market traction and adoption of UALink, which is a strategic product for Astera Labs, potentially impacting revenue projections.

Following the April release of the UALink 1.0 spec, how has the market responded to competing architectures? Has the design win pipeline for Scorpio X been affected? - Harlan Sur (JPMorgan Chase & Co)

2025Q3: UALink is meaningfully additive, with silicon development in full gear. Customers are engaged with RFPs and RFQs for Scorpio X, PCIe, and UALink solutions. - Sanjay Gajendra(COO)

What's driving UALink's adoption and can Astera accelerate its market entry? Can UALink-based products launch earlier than expected? - Harlan L. Sur (JPMorgan)

2025Q2: UALink is gaining traction due to technical advantages like low latency and native support for memory semantics. The open standard and broad ecosystem contribute to its appeal. Customers are considering UALink for future ASIC XPU solutions. - Sanjay Gajendra(COO)

Contradiction Point 2

Scorpio X Product Launch and Revenue Contribution

It involves differing expectations for the launch and revenue contribution of Scorpio X, which is a key product for Astera Labs, potentially impacting revenue projections.

What drove the Q3 results, and how does the Aries family compare to retimer content next year? - Blayne Curtis (Jefferies LLC)

2025Q3: Scorpio X revenue will start ramping in 2026, with a meaningful contribution in 2027, and then the growth will accelerate. - Michael Tate(CFO)

Can you outline Scorpio's growth potential for the X-Series and overall scalability? - Blayne Peter Curtis (Jefferies)

2025Q2: Scorpio X is expected to surpass P-Series in 2026, driven by higher design opportunities in scale-up connectivity. - Michael Tate(CFO)

Contradiction Point 3

Optical Solutions Revenue Timeline

It involves differing timelines for the revenue impact of optical products, which are crucial for Astera Labs' growth strategy.

What are the key revenue timelines for Astera's optical products and how will they affect growth? - Tore Svanberg (Stifel, Nicolaus & Company, Incorporated)

2025Q3: Revenue from scale-up optical will likely start in the 2028-2029 time frame, contributing meaningfully to our growth strategy. - Michael Tate(CFO)

What's driving the gross margin trend, and what's the long-term target given the recent tax rate changes? - Ross Clark Seymore (Deutsche Bank)

2025Q2: We continue to expect the initial revenue from scale-up optical products in 2028 and meaningful contribution starting in 2029. - Michael Tate(CFO)

Contradiction Point 4

Market Reaction and Design Win Pipeline for Scorpio X

It involves the company's assessment of the market's reaction to competitive architectures and the impact on Scorpio X's design win pipeline, which is crucial for understanding the product's market acceptance and growth potential.

Following the April announcement of the UALink 1.0 specification, how has the market responded to competitive architectures? Has the design win pipeline for Scorpio X been affected? - Harlan Sur (JPMorgan Chase & Co)

2025Q3: Market opportunity for Scorpio X remains strong, with several design wins and engagements in progress. UALink is meaningfully additive, with silicon development in full gear. Customers are engaged with RFPs and RFQs for Scorpio X, PCIe, and UALink solutions. - Sanjay Gajendra(COO)

How do rack-level system ramp schedules impact your business? - Joseph Moore (Morgan Stanley)

2025Q1: The first half will be driven by PCIe scale up and Ethernet scale out, with initial Scorpio and Aries 6 shipments. The second half will see production ramps of Scorpio switches and PCIe 6 retimers, with CXL and Scorpio X contributing in the second half. - Sanjay Gajendra(COO)

Contradiction Point 5

Scorpio X Shipments and Production Status

It involves the production and shipment status of Scorpio X, which could impact revenue projections and customer expectations.

Are initial Scorpio X shipments preproduction or production systems? - Quinn Bolton(Needham & Company)

2025Q3: Initial Scorpio X shipments will start preproduction in Q4, with the significant ramp in 2026. - Sanjay Gajendra(COO)

Could you discuss Scorpio's design progress and the competition for scaling beyond UALink? - Blayne Curtis(Jefferies)

2024Q4: We will start receiving orders for Scorpio switch in Q1. - Sanjay Gajendra(COO)