ALAB: Leader in AI Compute Connectivity

Key Points

• Initiating coverage with Overweight and $85 price target (Dec 2024)
• Market cap $11B; leader in PCIe retimer chips with #1 market share in AI compute clusters
• Expanding from compute connectivity into networking (AEC) and memory (CXL)
• Entire connectivity TAM estimated at ~$1B, projected to grow 65%+ CAGR to $7B by 2027
• Software-defined silicon architecture and COSMOS platform create competitive moat through customer integration

Business Highlights

• Aries retimers: Critical interconnect for NVIDIA GPU clusters, driving >90% attach rates
• Product expansion: AEC networking connectivity, CXL for memory expansion/pooling
• Customer relationships: Deeply embedded with largest hyperscalers through software integration
• TAM expansion: Moving beyond on-board to off-board (across racks) connectivity solutions

Investment Thesis

• Compute complexity driving performance bottlenecks in data center, especially around connectivity
• First-mover advantage with system-level/software expertise barrier
• Customer integration of COSMOS software stack creates stickiness
• Positioned to benefit from secular AI and cloud infrastructure growth trends

Financial Estimates (FYE Dec)

• FY24E: $0.26 EPS, FY25E: $0.52 EPS, FY26E projected growth
• Strong operating leverage expected as product mix improves

Source

• File: ALAB-JPM_Leader in AI Networking_Memory Connectivity_15Apr2024.pdf
• Location: Dropbox/2. Semi/Networking/ALAB/

Related

• ALAB | _MOC-networking