CRDO vs. AVGO: Which AI-focused Semiconductor Stock is the Better Buy?

Credo Technology Group Holding Ltd. CRDO and Broadcom Inc. AVGO are semiconductor companies that specialize in high-speed connectivity solutions essential for AI-driven data centers.

The data center market is undergoing rapid transformation as organizations accelerate their digital initiatives, including the adoption of hybrid and multi-cloud architectures, along with advanced technologies such as artificial intelligence (AI) and machine learning (ML). This surge in digital activity has resulted in explosive data growth, placing significant pressure on existing data center infrastructure. Consequently, there is a rising need for advanced data processing and storage solutions to support AI workloads. This trend presents strong growth opportunities for companies like Credo and Broadcom.

So, now the question arises: Which stock makes a better investment pick at present? Let’s dive into the pros and cons for each company.

The Case for CRDO

Credo is gaining a strong market presence in both Ethernet and Active Electrical Cables (AECs) solutions specialized for data centers. AEC products experienced triple-digit sequential growth in the third quarter of fiscal 2025, driven by their increasing adoption in the data center market. The demand for AECs is increasing as ZeroFlap AECs offer more than 100 times improved reliability than laser-based optical solutions. This made AECs an increasingly attractive option for data center applications, contributing to the new expansion of AEC usage and further solidifying Credo Technology’s position in the market.

Credo is also focused on expanding its product portfolio to include PCIe solutions, which will address the growing demand for AI scale-out and scale-up networks. 
CRDO’s PCIe and Ethernet retimers saw strong customer interest, especially for scale-out networks in AI servers. This growing demand underscores the increasing importance of high-performance solutions in the rapidly expanding AI server market. PCIe retimer demand is expected to exceed $1 billion by 2027, positioning Credo for significant future revenue growth.

Momentum in the optical business, particularly Optical Digital Signal Processors (DSPs), bodes well. It recently unveiled the innovative Lark Optical DSP family, engineered to transform 800G optical transceivers. The Lark portfolio has two distinct optical DSP products. The Lark 800 is a high-performance, low-power DSP optimized for fully retimed 800G transceivers, designed to meet the stringent power and cooling requirements of hyperscale AI data centers. The Lark 850 is an ultra-low-power 800G Linear Receive Optics DSP, consuming under 10W, making it an ideal solution for AI-driven data environments where power efficiency is exceptional.

For the fourth quarter of fiscal 2025, CRDO expects revenues between $155 million and $165 million. The Zacks Consensus Estimate for fiscal fourth-quarter revenues is pegged at $160 million, suggesting growth of 163.2% from the year-ago quarter’s reported figure.

The Case for AVGO

Broadcom is a diversified semiconductor company with a strong presence in AI chip development space. 

AVGO sees massive opportunities in the AI space as its three hyperscaler customers have started to develop their own XPUs. These hyperscalers are significantly ramping up investment in their next-generation frontier models, which do require high-performance accelerators and AI data centers with larger clusters. AVGO noted that by 2027, each of AVGO’s three hyperscalers plans to deploy 1 million XPU clusters across a single fabric. Consequently, AVGO’s Serviceable Addressable Market for XPUs and networks is expected to be between $60 billion and $90 billion in fiscal 2027 alone. Apart from these three customers, AVGO is also working with four other hyperscalers to aid them in building their own customized AI accelerators.

XPUs are necessary to train Generative AI (GenAI) models, and they require complex integration of compute, memory, and I/O capabilities to achieve the necessary performance at lower power consumption and cost. Its next-generation XPUs are in 3 nanometers and will be the first of its kind to market in that process node. AVGO is now planning to tape out the industry’s first 2-nanometer AI XPU packaging 3.5D and targets scaling clusters of 500,000 accelerators for hyperscale customers.

In the last reported quarter, semiconductor solutions revenues (55% of net revenues) totaled $8.2 billion, rising 11% year over year, driven by strong AI semiconductor revenues. AI-related revenues grew 77% year over year to $4.1 billion, which was a major driver of overall revenue growth. This growth was driven by higher shipments of networking solutions to hyperscalers for AI applications.

For second-quarter fiscal 2025, Broadcom expects revenues of $14.9 billion, while AI semiconductor revenues are projected to grow 44% year over year to $4.4 billion. Semiconductor revenues are anticipated to grow 17% year over year to $8.4 billion.

Price Performance and Valuation for CRDO & AVGO

Over the past month, CRDO and AVGO have registered gains of 67.8% and 36.3%, respectively.

In terms of the forward 12-month Price/sales ratio, CRDO is trading at 15.50X, lower than AVGO’s 16.05X.

How Do Zacks Estimates Compare for CRDO & AVGO?

Analysts have kept their earnings estimates unchanged for CRDO’s bottom line in the past 90 days.

Meanwhile, for AVGO, there is a marginal upward estimate revision.

CRDO or AVGO: Which is a Better Pick?

Both CRDO and MRVL are well-positioned to gain from the rapidly growing AI driven data center market. CRDO at present flaunts a Zacks Rank #3 (Hold) while Broadcom carries a Zacks Rank #2 (Buy).  Consequently, in terms of Zacks Rank, AVGO seems to be a better pick at the moment.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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

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