Credo Technologies Hits Bottom: Now Is the Time to Buy

While near-term headwinds persist, primarily in the form of investor concerns, Credo Technologies' (NASDAQ: CRDO) stock price is near its bottom and setting up for a rebound.

Concerns center primarily on margins and concentration, with guidance for 2026 including gross margin compression and a business mainly driven by three clients.

The upshot is that growth is forecast to persist at a hyperpace and margins are strong, driving profits and cash flow useful for investment. Other critical takeaways include analyst price targets and institutional activity, which reveal a solid support base, market tailwinds, and a potential 90% upside this year. 

Institutional Buying and Analyst Targets Point to Major Upside

The analyst response to the March 2 earnings release was mixed, including some price target reductions, but ultimately bullish. The price target reductions reflect a cautious edge but align with an outlook for higher stock prices.

Even the lowest fresh target of $125 offers some upside relative to the critical support target, while the consensus of recent reductions implies a 50% upside. The consensus of all fresh targets, whether bullish or bearish, implies a more substantial rebound is possible, and the consensus of trailing-12-month targets suggests 90% upside. 

Institutional trends are the most significant, as the group owns 80% of the stock and represents the largest share of investable dollars. They have been accumulating this stock for three consecutive quarters, with buying ramping sequentially and setting an all-time high in early Q1 2026. This reflects high conviction in the outlook, which forecasts at least three more years of hypergrowth and a 2030 price-to-earnings multiple in the low teens. 

The stock could easily rise by 90%, and will likely increase by upwards of 100% to 200% over time. While business is concentrated on three hyperscalers, Amazon (NASDAQ: AMZN), Microsoft (NASDAQ: MSFT), and xAI, these businesses are expanding their capacities exponentially and are expected to remain in an aggressive investment mode for years. Not only are new data centers being built, but older ones need updating, and all will need refurbishing over time. Data center products are high-power systems, used 24/7 in high-heat environments, and degrade more quickly than traditional IT systems. Estimates vary but suggest refurb cycles could run as short as one to three years, a significant long-term driver for this business. 

Credo Technologies Stock Price Action Reflects a Bottom in Play

Credo Technologies’ market struggles with traction in early March, but reflects a bottom in play. Lows hit ahead of the earnings report were replumbed afterward, leading to a rebound and confirming $100 as critical support. The subsequent price action is a little sketchy, leaving the door open to another price dip, but it continues to trade above the critical support, while indicators show oversold conditions and bearish momentum waning. 

The likely outcome is that this market wallows near its lows but maintains support, building a base in preparation for a rebound. The trigger for rebounding may not come until the fiscal Q4 2026 release and fiscal year 2027 (FY2027) guidance, but there are other catalysts ahead. Any bullish updates, specifically from the company's primary clients, could mark the beginning of the recovery.

Credo Technologies Earnings Release: Sell-the-News!

Credo Technologies' Q3 release turned into a sell-the-news event; however, the news was good and aligns with an outlook for stock price bottoming. Revenue grew 52% sequentially and more than 200% year-over-year (YOY), outpacing MarketBeat’s reported consensus by nearly 500 basis points (bps) due to strength across all end markets.

Gross and operating margins were also strong, improving significantly from the prior year, driving $208.8 million in adjusted net income, a 51% profit margin, and 1500 bps in bottom-line outperformance, with earnings up more than 300% YOY.

The guidance was also strong. The company issued Q4 guidance, expecting revenue of $425 million at the low end of the range, a 450 bps sequential growth and 350 bps better than expected. 

Margin news was a sticking point, with gross margin expected to contract by approximately 350 bps, but this is offset by nearly 200% YOY revenue growth and a high likelihood of cautious guidance. 

The balance sheet reveals no red flags for investors to worry about. The company is well-capitalized, cash is up, liabilities are low, there is no significant debt, and equity is rising. Equity increased by approximately 200% on a YTD basis, leaving total liability at roughly 0.1X. 

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