Credo’s multifaceted platform model with a range of strong products in copper, optics, and solutions for scaling up, out and across data center clusters, makes it one of the best investments in data center infrastructure.
I had planned to reduce some Credo as part of my drive to reduce AI and data center exposure. Besides, the entire sector and growth stocks were sputtering with higher interest rates. However, with the sharp drop, I don’t want to sell it for $180, instead I would start accumulating around $150-160 for the longer term. Dell’s (DELL) earnings and the market’s positive reaction to it were strong enough to reaffirm the bull case for data center infrastructure stocks; Credo just didn’t have enough of a beat even with 85% higher guidance! But then it also sells for 15xApril 2027 sales so it had become a little expensive in a rough market.
Valuation - with 85% growth its multiple is significantly cheaper at 10x sales - for a $2.5Bn company growing to 4, this is a reasonable price to pay.
Platform - With now increasing tentacles in optic fiber connectivity with NPO, (Near Package Optics), CPO, (Co Packaged Optics) and of course dominance in copper with its AECs (Active Electrical Cables) - Credo has a lot of bases covered as a reliable platform with several solutions as data centers continue to scale up, out and across.
Profitable - Credo’s margins have been incredible, there were some complaints about a 67% margin, folks this a manufacturing outfit - 67% gross margins are pretty darn good and its operating margins are 30%, also phenomenal for a company of such a small size. Amongst so many peers bleeding because of high growth, this is a stand out operation.
I will accumulate on declines over the next two - three months, no rush, this stock should return 25-30% a year annually for the next 2-3 years.
Here are analysts’ comments:
Jefferies analyst Blayne Curtis said there may have been some high expectations, but the growth story is still intact “and should accelerate into next year.”
“The F27 optical guide held at >$600M, but we still see a path to a multi-billion-dollar business over time,” Curtis wrote in a note to clients. “AECs likely grow [double-digits] in October with a stronger ramp on the back of SPCX. Retimers, ALCs, and OmniConnect broaden the F28 opportunity. The lack of [near-term] upside is disappointing, but does not change our LT thesis, and CRDO remains our top pick.”
Curtis has a Buy rating and a $270 price target on Credo.
Needham analyst N. Quinn Bolton said he expects more than $600M in revenue from optical, as active electrical cable revenue continues to grow. Bolton has a Buy rating and a $275 price target on Credo.
“Our key takeaways include: 1) Management reaffirmed its expectation for >$600MM of optical revenues in FY27 split between ZF Optics, DSPs, and PICs with an inflection coming in F2H27. Each product line is expected to contribute >$100MM in revenue for the year; 2) 800G AEC demand is expected to persist through FY27, with initial 1.6T revenue in F2H27 and a more meaningful 1.6T ramp in FY28. The company currently has strong relationships with five hyperscalers, as well as expanding engagements with neocloud customers; and, 3) CRDO is leading with its PIC product to supply emerging NPO/CPO platforms.”
