Credo Tech should surprise investors with big beats on earnings and guidance. The stock is a compelling buy at $140 for the long-term
Credo has been a recommended and owned stock for several months. It has a strong foundation in AI infrastructure and will remain an integral part of scaling up and scaling out of data centers for both active electric cables and optical fiber connectivity. As such there is visibility for at least two years of over 35% revenue growth.
It's a thinly traded small-cap, therefore quite volatile and has bounced between $125 and $190 in just the past month.
Its profitable: For just a $1Bn company, it has shown very strong 24% GAAP operating margins - it's even profitable at GAAP standards, which is a rarity when you’re growing sales at 100%. A company that small usually never has that kind of operating leverage to get past overhead and stock based compensation.
It is fighting competition by spreading its wings: Datacenter connectivity is a competitive business with large mega-caps , Marvell, and Arista breathing down its neck, along with fast growers like Astera Labs, plus there is also competition between the shorter distance copper cables, which is Credo’s turf and the longer distance fiber optics, which has several competitors, and Credo has to duke it out in this segment. To their credit, they have competing products in fiber optics and have geared up to ensure that they’re part of this growth market as well.
Credo declares on Monday Dec 1st, and the general consensus is that it will beat estimates the way it did in the previous quarter, but regardless, $140 is a good price to add, and it’s impossible to gauge what Credo’s stock might do after earnings.
Q3 estimates - EPS - $0.50, with 607% growth, Revenue $235Mn with 225% growth.
FY-2026 estimates - EPS $2.08 with 197% growth, Revenue $967Mn growing at 21%.
For the next 2-3 years analysts estimate 23% revenue and 25% earning growth, which I feel is on the lower side, and I would not be surprised if these numbers are revised higher to 27-28% revenue and 30-32% earnings growth. There is a genuine challenge of customer concentration with Tesla, Amazon and Microsoft, being its three largest customers, but that is endemic of the AI/data center industry, no one escapes that.
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