All eyes may be on the Reddit IPO, but Astera Labs could rocket with its IPO

Good morning! Fortune reporter Luisa Beltran here filling in for Allie.

The most important IPO this week isn’t Reddit, the social media company that counts Sam Altman as an investor. Instead, Astera Labs could be the company to help bust open the market for new issues.

Reddit and Astera will provide the year’s first real test of investor appetites for IPOs. In 2021, 397 companies went public using a traditional IPO, a record. But many of those IPOs performed badly in the aftermarket. About 82% are still trading below their IPO price, according to Matt Kennedy, senior IPO strategist at Renaissance Capital, a provider of pre-IPO research that manages two IPO-focused ETFs (NYSE: IPO, IPOS).

That subpar performance has caused new issues to slow substantially. In the fall, four well-known companies—Arm Holdings, Instacart, Klaviyo, and Birkenstock—went public and all four got off to a rough start. Arm has emerged as the big winner with shares soaring this year. Arm’s stock closed Tuesday at $124.59, more than double its $51 IPO price.

But Kennedy believes the IPO market is warming up. “We're off to a slower start compared to a normal year, but compared to this point last year, U.S. IPO proceeds are up 169% (before Astera and Reddit). Deal count is up 15%. I do think we'll more or less normalize by the summer,” Kennedy told Fortune.

This week is important because Reddit and Astera are the first major tech IPOs of this year, Kennedy said. Reddit may be more well-known, but Astera has the advantage. Astera develops semiconductor-based connectivity solutions with the aim of enabling the “mainstreaming” of AI and machine learning in the cloud. Astera boosted the size and price of its IPO on Monday: The company offered 19.8 million shares at $32 to $34, up from the 17.8 million shares it had planned to sell at $27 to $30. Such increases typically signal high demand from investors.

Astera, which priced its deal late Tuesday, ended up raising $712.8 million after selling 19.8 million shares at $36, $2 above its projected range. It will trade Wednesday on the Nasdaq under the ticker ALAB.

Reddit, meanwhile, is a social media company that lets its registered users submit posts, links, images, and videos that other members vote "up" or "down." Reddit has raised more than $1.3 billion in funding, from investors like Sequoia Capital, Andreessen Horowitz, and Sam Altman, the CEO of OpenAI. Reddit is selling 22 million shares at a $31 to $34 price range, according to a regulatory filing. The company plans to price its IPO on Wednesday and trade Thursday. Read my story here on who is getting rich off the Reddit IPO.

Both Reddit and Astera posted several quarters of losses and then swung to a profit in Q4. Reddit is going public at six times trailing sales, while Astera is more than 40 times, Kennedy said. "That tells you something about the value investors place on Astera’s expected growth," he said.

Talk to you tomorrow,

Luisa Beltran
Twitter: @LuisaRBeltran
Email: luisa.beltran@fortune.com
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This story was originally featured on Fortune.com