Astera Labs
ALAB · NasdaqOperating margin widened even as gross margin fell
Gross margin slipped 2.56 points to 73.3%, yet operating margin rose 2.02 points to 22.7%, because operating costs grew 87.5% against revenue up 104.5%.
Q2 FY2026, the quarter to Jun 30, 2026 · 10-Q filed Aug 5, 2026
- Operating margin
- 22.7%
- Net income
- $153.1M
- Free cash flow, quarter
- $67.2M
Where Astera Labs's money goes
- 01
Operating margin widened even as gross margin fell
Gross margin slipped 2.56 points to 73.3%, yet operating margin rose 2.02 points to 22.7%, because operating costs grew 87.5% against revenue up 104.5%.
Why it matters
Revenue rose 104.5% to $392.4M from $191.9M. Cost of revenue rose faster, 126.1% to $104.8M, so gross profit grew 97.6% to $287.6M and gross margin fell to 73.3% from 75.8%. The filing attributes the drop to "a shift in product mix towards lower margin hardware modules, as well as the impact of the Warrants", and credits part of the revenue gain to "higher overall average selling prices resulting from an increased mix of hardware modules and Scorpio products".1
Below gross profit, the cost lines grew more slowly. Total operating expenses rose 87.5% to $198.3M, 50.5% of revenue and 4.58 points less than a year earlier. Sales and marketing rose 41.7% and fell 2.98 points to 6.7% of revenue; general and administrative fell 1.47 points to 9.2%; research and development held near 34.6%. Operating expenses took 69.0% of gross profit, and operating income rose 124.4% to $89.2M.1
AnalysisAnalysis: this is the module trade at work. The gross margin given up was more than repaid by spreading engineering and overhead over a much larger revenue base. That holds only while revenue grows faster than operating costs; if growth slows, a lower gross margin rate would weigh directly on operating margin.
The prior quarter shows the same split. In Q1 FY2026 gross margin was 76.3% and operating margin 20.1%, on revenue of $308.4M. Against both the prior quarter and a year earlier, the gross margin rate fell while the operating margin rate rose.1
- 02
A tax benefit supplied a third of net income
The $50.3M income tax benefit equals 32.8% of net income of $153.1M, so operating income of $89.2M is the steadier read of the business.
Why it matters
Income before income taxes was $102.8M. Instead of a tax charge, the quarter carried an income tax benefit of $50.3M, equal to 48.9% of pre-tax income, against a benefit of $0.56M a year earlier. Net income therefore exceeded pre-tax income and rose 198.9%, while operating income rose 124.4%. Operating income was 58.3% of net income. The filing says the benefit grew "primarily due to an increase in excess tax benefits related to equity compensation".1
Excess tax benefits arise when employee shares are worth more at vesting than at grant, so the deduction rises with the share price. The filing also describes a valuation allowance on U.S. deferred tax assets that it may release in a future period, which it says may result in a material decrease to income tax expense for the period the release is recorded.1
AnalysisAnalysis: the tax line depends on the share price when equity vests, not on how many chips ship, so operating income gives the cleaner reading of how the business itself is earning from quarter to quarter. A valuation allowance release, if it comes, would be an accounting gain rather than a change in earnings power.
Diluted net income per share was $0.83 against $0.29 a year earlier, on diluted shares of 183.3M against 178.1M. Both per-share figures include the tax line.1
- 03
Cash followed operating profit, not net profit
Operating cash flow of $87.7M matched 98.2% of operating income but only 57.3% of net income, which the tax benefit had lifted.
Why it matters
Operating cash flow was $87.7M against operating income of $89.2M and net income of $153.1M. Free cash flow was $67.2M, 17.1% of revenue, against $133.3M a year earlier, when it was 69.5% of revenue. Capital spending rose to $20.5M from $2.0M; the filing says construction in progress is mainly production equipment for future products, which begins to depreciate when manufacturing starts.1
For the half year, the filing ties the gap to working capital: a change in accounts receivable "due to higher product sales and the timing of customer payments", and in inventory from "inventory build up to support anticipated demand". Prepaid expenses and other current assets, which include an income tax receivable, also rose over the half year.1
AnalysisAnalysis: the close match between operating cash flow and operating income, together with the larger income tax receivable on the balance sheet, suggests that much of the tax benefit has not yet arrived as cash. The test is whether receivables are collected and the inventory ships in the following quarters, bringing cash back toward profit.
The shortfall is new. In FY2025 operating cash flow was $319.3M against net income of $219.1M, and free cash flow was $281.8M, 33.1% of revenue of $852.5M.1
Sources
- 1.Astera Labs 10-Q for the period to 2026-06-30 (the filing), Aug 5, 2026, read Nov 2, 2026
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Growth, profit and margin
Revenue went from $79.9M in FY2022 to $852.5M in FY2025, the operating margin from -75.4% to 20.3%, over 3 years.
- Revenue$852.5M
- Operating income$173.4M
- Operating margin20.3%
- Period
- Q2 FY2026
- Revenue
- $392.4M
- Operating income
- $89.2M
- Operating margin
- 22.7%
- Net income
- $153.1M
- Free cash flow
- $67.2M
Does the profit turn into cash?
Q2 FY2026: free cash flow of $67.2M against net income of $153.1M in the quarter.
- Operating cash flow$319.3M
- Capital expenditure$37.5M
- Free cash flow$281.8M
- Net income$219.1M
Capital expenditure is drawn below the axis as cash out. Cash conversion is operating cash flow over net income, shown in the tooltip for years with a profit.
Financial data and sources
The figures
Margins, cash and growth for the period, each with what it was computed from.
Where revenue comes from
Every breakdown the filing reports for the period, with each item's share.
This filing reports no breakdown of revenue by product, segment or region for the period.
What it costs
The cost lines beneath operating income, each as a share of revenue, then the operating result.
Costs are reported by function: what it cost to make what was sold, then the expenses of selling, developing and administering.
| Cost line | Q2 FY2026 | Of revenue | Source |
|---|---|---|---|
| Cost of revenue | $104.8M | 26.7% | Source10-Q, us-gaap:CostOfGoodsAndServicesSold, as reported in the 10-Q filed 2026-08-05 |
| Operating income | $89.2M | 22.7% | Source10-Q, us-gaap:OperatingIncomeLoss, as reported in the 10-Q filed 2026-08-05 |
Operating figures the company states
From the text of the filing rather than its statements, each with the sentence that states it.
View source
a $5.6 million increase in personnel-related costs resulting from a 79% increase in headcount
View source
a $32.7 million increase in personnel-related costs resulting from an 118% increase in headcount
View source
a $4.9 million increase in personnel-related costs resulting from a 47% increase in headcount
The statements, as filed
The income statement, cash flow statement and balance sheet in the company's own order and words. Every line links to the filing.
Income statement19 lines, as presented in the 10-Q
Cash flow statement3 lines, as presented in the 10-Q
Year to date, as a quarterly filing reports it.
| Line | Q2 FY2026 | A year earlier | Change | Source |
|---|---|---|---|---|
| Cash flows from operating activities | ||||
| Net income | $153.1M | $51.2M | +199% | Source10-Q, us-gaap:NetIncomeLoss, as reported in the 10-Q filed 2026-08-05 |
| Adjustments to reconcile net income to net cash provided by operating activities | ||||
| Warrants contra revenue | $10.2M | $1.8M | +467% | Source10-Q, alab:ClassOfWarrantsOrRightContraRevenue, as reported in the 10-Q filed 2026-08-05 |
| Cash, cash equivalents, and restricted cash | ||||
| End of the period | $111.5M | $163.4M | -32% | Source10-Q, us-gaap:CashCashEquivalentsRestrictedCashAndRestrictedCashEquivalents, as reported in the 10-Q filed 2026-08-05 |
Balance sheet21 lines, as presented in the 10-Q
About this data
- Source
- Astera Labs 10-Q, accession 0001736297-26-000035, filed Aug 5, 2026, read on Nov 2, 2026.
- History
- From the SEC's XBRL company facts, the value from the latest filing that stated each period.
- Reading
- Paragraphs marked Analysis are CXProWealth's reading; everything else is the filing's own numbers and words, or a cited source.
- Version
- methodology business-lens-1.0 · schema 1.2.0 · run business-lens-2026-11-02
What holds Astera Labs's model up, and what could bend it
Competitive edge
Designing chips, not making them, keeps capital needs light
With wafers made by subcontractors, gross margin was 73.3% and capital spending only 5.2% of revenue, leaving room to spend 34.6% of revenue on research and development.
The detail
The company "depends upon third-party subcontractors to manufacture wafers and other inventory parts". In Q2 FY2026 gross profit was $287.6M on revenue of $392.4M and capital spending was $20.5M. In FY2025 the same model turned revenue of $852.5M into free cash flow of $281.8M, 33.1% of revenue.1
AnalysisAnalysis: the value sits in design and in the COSMOS software embedded in each part, which customers use to configure and monitor the parts in their own fleets. Replacing a part means reworking that tooling as well as a board layout, which is what makes a design win sticky for a platform generation.
Engineers win the sockets, so selling costs stay small
Research and development of $135.9M was 129.6% of cost of revenue, while sales and marketing took just 6.7% of revenue.
The detail
Research and development rose 103.7% to $135.9M, 152.3% of operating income. Its headcount grew 118% from a year earlier, against 47% for sales and marketing and 79% for general and administrative. Sales and marketing rose 41.7% to $26.4M and fell 2.98 points as a share of revenue.1
AnalysisAnalysis: when a few large buyers choose suppliers once per platform, selling happens in design reviews run by engineers, not through a large sales force. The cost is front-loaded into research and development; once a design is won, extra units ship without matching growth in selling or overhead, which is how operating margin widened this quarter.
The pattern shows across years: revenue went from $396.3M in FY2024, with an operating loss of $116.1M, to $852.5M in FY2025, with operating income of $173.4M. This quarter's revenue of $392.4M was 99.0% of all FY2024 revenue, and its operating income of $89.2M was 51.5% of the FY2025 total.1
What to watch
A handful of buyers carries most of the revenue
Four direct customers each took at least a tenth of revenue, and accounts receivable are concentrated among a few of the same names.
The detail
The company reports as a single operating segment and names four direct customers that each took at least a tenth of revenue this quarter. Several are manufacturing partners buying on behalf of end customers, and the filing notes that their shares "may fluctuate in a manner that is not necessarily representative of changes in underlying end-customer demand".1
Revenue is billed mainly to addresses in China, Singapore and Taiwan, where the manufacturing partners and distributors sit. Four customers each held at least a tenth of accounts receivable at the half year, and receivables rose with higher sales and the timing of customer payments. The quarterly report adds no new risk factors to those in the annual report.1
AnalysisAnalysis: a shift by any one large buyer, or by the manufacturing partner it uses, would move revenue and cash collection together. Broader demand beyond the leading hyperscalers is what would ease the concentration.
Gross margin is the lowest of the last eight quarters
At 73.3%, gross margin was below 76.3% in the prior quarter, a drop the filing ties to lower margin modules and customer warrants.
The detail
Gross margin was 73.3%, against 76.3% in Q1 FY2026 and 75.8% a year earlier, and below every quarter back to Q3 FY2024. Gross profit still rose 97.6% to $287.6M. The filing attributes the decline to "a shift in product mix towards lower margin hardware modules, as well as the impact of the Warrants".1
A large customer holds warrants that vest as it buys specified tranches of product, including a new warrant issued this year. Their cost is recognized "as a reduction of revenue in proportion to the amount of related product sales", so it lowers reported revenue and gross margin rather than appearing as an expense, and it can continue over the rest of the contract term.1
AnalysisAnalysis: the risk is less the lower rate itself than gross profit dollars flattening while the rate keeps falling. A period in which modules and warrants grow without lifting gross profit would mean revenue growth with little added earnings power.
Outside foundries and Taiwan equipment carry the supply risk
The company relies on third-party subcontractors for wafers, holds most of its property and equipment in Taiwan, and carries fixed software and cloud commitments.
The detail
The company depends on third-party subcontractors for wafers and other parts; those relationships usually allow purchase orders to be cancelled but require payment of costs already incurred. It also carries non-cancellable purchase commitments, mainly for software licenses and cloud hosting. Most of its property and equipment is located in Taiwan. Capital spending rose to $20.5M from $2.0M a year earlier.1
AnalysisAnalysis: a disruption at a subcontractor or in the region would hit shipments of products already designed in, and production equipment bought ahead of a product launch earns nothing until that product ships.
Sources
- 1.Astera Labs 10-Q for the period to 2026-06-30 (the filing), Aug 5, 2026, read Nov 2, 2026
Astera Labs, further in
Member research, then your own questions on ChatGPT.
What could change the outlook
What Astera Labs's numbers depend on from here, read from the filing: the conditions behind this period's margins and growth, and where a change would show first.
- What the module mix and the warrants mean for earnings from here
Which lines the coming quarters of earnings depend on, how far the gross margin rate can give way before gross profit stalls, and what to read in cash, tax and receivables along the way.
- Reading profit, tax and cash as three separate lines
Why net income, operating income and operating cash flow told different stories this quarter, and which of them best tracks how the business itself is earning.
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Have a question about Astera Labs?
Explore its profit drivers, competitive edge, risks, or your own investment and business questions with CXProWealth on ChatGPT.
- Why did Astera Labs' operating margin widen while its gross margin fell as hardware modules grew in the mix?
- How much of Astera Labs' latest net income came from the equity compensation tax benefit, and why does it rise with the share price?
- What would bring Astera Labs' operating cash flow back in line with its net income over the next few quarters?
Business Lens describes Astera Labs from its own filings with the SEC. It is not a view on its shares, a target, or advice to buy, sell or hold anything; figures are as filed and may be restated by the company later. The filing, the dates and the version are under the financial data above.