Bull of the Day: Credo Technology (CRDO)

I last wrote about Credo Technology Group (CRDO) as the Bull of the Day in early May when shares were trading under $50. Two beat-and-raise earnings reports later, the stock has more than tripled.

Credo Technology is a key supplier of high-performance serial connectivity solutions for the hyperscale datacenter, 5G carrier, enterprise networking, HPC (high-performance computing), and AI/ML markets.

Here's what I wrote on May 5...

With sales growing 120% this fiscal year to $425 million, one of Credo's high demand products is their line of Active Electrical Cables (AEC) which provide high-speed connectivity solutions to data centers and enterprises with heavy AI and cloud computing needs.

Credo also makes Digital Signal Processing (DSP) chipsets to facilitate high-bandwidth data transfer with low energy usage.

Credo's largest and most strategic customers are leading hyper-scalers like Microsoft and Amazon who use Credo's AECs to support AI and cloud infrastructure.

And its biggest competition comes from Broadcom (AVGO) and Marvell (MRVL) in connectivity solutions for the AI Economy.

(end of May 5 article excerpt)

I also mentioned that there was concern about Credo's dependence on Amazon (AMZN) as the single large customer who helped them deliver whopping January quarter (Q3FY'25) beats of 38% on EPS and 12.5% on the topline.

Another Monster Beat-and-Raise Quarter

Fast forward to their July quarter (Q1FY'26) and all that "FUD" is gone as this year is projected to see sales grow another 120% annually to cross $960 billion.

On September 3 Credo reported Q1 fiscal 2026 adjusted EPS of 52-cents, which crushed the Zacks Consensus Estimate by 48.6%. Revenues surged 273.6% year-over-year to $223.1 million, blowing through estimates by 17.4%.

Based on company guidance, not only was the revenue outlook significantly boosted but the bottom line consensus jumped nearly 35% from $1.48 to $2.00 EPS, representing 185% growth.

Credo’s growth has been propelled by strong, strategic partnerships with hyperscalers and other key customers. With rising market demand for reliable, power-efficient connectivity solutions, the company anticipates sustained revenue growth along with broader diversification across customers, protocols and applications.

In the first quarter, each of the company’s top three customers contributed more than 10% to revenues. Credo expects its customer base to continue expanding over the coming quarters, and based on customer forecasts, it anticipates strong year-over-year growth.

NVIDIA is the AI Market Maker

As I've said for almost eight years, Jensen & Co. have been creating new industries we didn't even know we needed. Once modern data enterprises and research universities caught on to what GPU-CUDA "massively parallel architectures" could do for them, they literally created new uses cases by the thousands per year.

When you can simulate anything, use synthetic data to do so, and then run billions of iterations on your experimental idea in a matter of hours, innovation happens much faster. This is critical for training and inference in self-driving cars and humanoid robots where human safety is always at risk.

Thus Jensen talks about 1,000-fold advances in science, engineering, and social challenges. And then you understand why NVIDIA (NVDA) power tools are in such demand for the Global 2000 corporations, plus universities, plus nation-states who need to secure and "mine & model" their own data.

The Credo connection is that Jensen likes still loves copper for GPU connections in densely-packed rack-scale AI servers.

What Makes Credo's AECs More Efficient Than Other Cables?

Credo's Active Electrical Cables (AECs) stand out for their efficiency and performance in modern data center environments, especially compared to traditional Direct Attached Copper (DAC) and Active Optical Cables (AOC). Here are the key factors:

1. Substantial Power Savings

Credo’s AECs consume about 50% less power than traditional DACs and significantly less than AOCs, making them highly energy efficient.

For example, their second-generation HiWire LP SPAN AECs reduce power consumption by nearly half while increasing cable reach by 40% compared to the previous generation.

2. Thinner, More Flexible Cables

Credo’s AECs use thinner copper (as slim as Cat 6 cables), reducing cabling volume by up to 75% compared to passive DACs. This makes them easier to route and manage in dense data center environments.

The thinner, lighter cables also support longer distances and tighter bend radii, which is critical for modern rack-to-rack and server-to-switch connections.

3. Superior Performance and Reliability

Integrated digital signal processors (DSPs) and retimers in Credo’s AECs deliver better signal integrity, enabling higher data rates (up to 800G and 1.6T) over longer distances without degradation.

These cables offer extreme reliability, with Mean Time Between Failure (MTBF) ratings up to 100 million hours, minimizing downtime and maintenance.

4. Plug-and-Play Simplicity

Credo’s AECs are hot-swappable and easy to deploy, providing a drop-in replacement for AOCs and DACs without the need for additional components or complex configuration.

They also support advanced features like dual Top-of-Rack (TOR) redundancy for enhanced reliability in hyperscale data centers.

5. Lower Environmental Impact

By reducing power consumption and using less plastic and copper, Credo’s AECs help customers decrease their environmental footprint.

Sheraz Mian and Zacks Top 10 Picks

Zacks Director of Research Sheraz Mian made CRDO one of his Top 10 Picks for this year. While the stock was off to a rough start for Q1, CRDO is now one of his best performers with a triple-digit return.

And his description of their business in January (when the Top 10 portfolio is launched anew every year) was exceptional so I want to share it for your own due diligence...

Credo aims to break bandwidth barriers in the data infrastructure market. It provides secure, high-speed connectivity solutions that deliver improved power efficiency as data rates and corresponding bandwidth requirements increase exponentially throughout the data infrastructure market.

Specifically, Credo’s SerDes and DSP chips optimize data transfer by enabling high-speed, error-free communication within data centers, while its HiWire Active Electrical Cables (AECs) provide efficient, high-bandwidth connections between servers to support AI workloads and large-scale data processing.

Many important trends are driving the data infrastructure market, such as cloud workloads, streaming video, 5G wireless deployment, the expansion of Internet of Things (IoT), and, most notably, the growing adoption of artificial intelligence. These trends have all created an explosion of data that has stressed existing infrastructure and forced a major shift.

(end of Sheraz Mian observations)

The rapid adoption of AI and the need for efficient data center connectivity are driving increased demand for Credo’s products among top-tier builders of the AI Economy.

Credo is expanding its customer base to include all the major technology firms -- from Apple to Tesla -- and multiple large enterprises in energy and education in the midst.

Bottom line on CRDO: If Sheraz hadn't put Credo on my radar, I might not have studied it enough. As it happens, I missed my shot under $50 as I was too distracted by the tariff tantrums. And the stock is now very richly valued at 25X sales. But I would look for pullbacks to $125 to enter.

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This article originally published on Zacks Investment Research (zacks.com).

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