Credo Technology: A Bullish Outlook

Key Takeaways:

• Credo Technology Group (CRDO) is a leading provider of high-performance, high-bandwidth serial connectivity solutions for various industries, including hyperscale datacenter, 5G carrier, enterprise networking, artificial intelligence, and HPC markets.
• The company’s Active Electric Cables (AECs) are known for their low-latency connectivity and are used in hundreds of hardware applications.
• Credo’s products are optimized for optical and electrical Ethernet applications, including emerging markets such as 100G, 200G, 400G, 800G, and 1.6T port markets.
• The company has seen significant growth, with a 272.1% year-over-year increase in revenue and a 120% increase in stock price this year.
• Credo is diversifying its business into optical interconnects, with new product lines, strategic acquisitions, and partnerships with companies like NVIDIA and Oracle.

Introduction to Credo Technology Group
Credo Technology Group (CRDO) is a $27 billion provider of high-performance, high-bandwidth serial connectivity solutions for various industries, including hyperscale datacenter, 5G carrier, enterprise networking, artificial intelligence, and HPC markets. The company is famously known for its purple Active Electric Cables (AECs) that use copper to provide low-latency connectivity for hundreds of different hardware applications. Credo’s connectivity solutions are optimized for optical and electrical Ethernet applications, including emerging markets such as 100G, 200G, 400G, 800G, and 1.6T port markets.

Strong Financial Performance
The company’s stock has seen significant growth, with a 120% increase this year, driven by strong demand for its products and solutions. In its recent quarterly report, Credo announced adjusted EPS of 67-cents, surpassing the Zacks Consensus Estimate by 36.7% and dwarfing the year-ago quarter by 850%. The company’s revenues surged 272.1% year-over-year to $268 million, with product sales increasing 278.3% to $261.3M. This growth was driven by the expansion of major hyperscale customers’ AI training and inference clusters. Credo guided up to $345M in Q3 revenue and now expects roughly 170% fiscal 2026 growth, with the Zacks topline consensus sitting at $1.19 billion.

The Optical Question
NVIDIA (NVDA) is a significant customer of Credo’s AECs, and the company has repeatedly showcased its AECs in live demonstrations at the NVIDIA GPU Tech Conference (GTC). However, NVIDIA has also announced a collaboration with Coherent (COHR), a purely optical player, to develop silicon photonics networking switches using co-packaged optics (CPO). This ecosystem will allow AI factories to connect millions of GPUs. While NVIDIA still uses copper wiring within its Blackwell NVL72 rack-scale systems, it recognizes the power and speed of optical solutions for connecting many racks together for the lowest latency.

Buying the Pullback
Despite the strong financial performance, Credo’s stock experienced a pullback from above $200 due to concerns over "circular financing" narratives and no visible ROI from massive capex. However, the company’s diversification into optical interconnects and its commitment to advanced optical solutions make it an attractive investment opportunity. Credo offers a complete suite of Optical Digital Signal Processors (DSPs) that support a wide range of speeds from 50G up to the emerging 1.6T (Terabits per second) PAM4 optical transceivers and Active Optical Cables (AOCs).

New Product Lines and Strategic Acquisitions
Credo has launched new optical products, such as its ZeroFlap optical transceivers and the Bluebird DSP for 1.6T optical transceivers, demonstrating its commitment to advanced optical solutions. The company has also made strategic acquisitions, including the acquisition of Hyperlume, Inc., a developer of MicroLED-based optical interconnects for chip-to-chip communication. This move enhances Credo’s ability to offer next-generation optical connectivity solutions. Management has indicated strong momentum in the optical business, with projections for doubling optical revenues in the current fiscal year.

Partnerships and Collaborations
Credo is aggressively preparing for the optical phase of its product line-up through partnerships with companies like NVIDIA and Oracle. The company’s close work with these industry leaders demonstrates its commitment to providing innovative solutions for the emerging optical market. Credo has also joined the Arm Total Design ecosystem, bringing its industry-leading, high-speed SerDes and mixed-signal DSP IP portfolio to the ecosystem. This combination allows customers to rapidly design innovative silicon solutions for next-generation AI, cloud computing, and hyperscale data center applications.

Growth Opportunities
Credo has significant growth opportunities, with a potential market size of over $10 billion. The company’s diversification into optical interconnects, new product lines, and strategic acquisitions position it for long-term success. With its strong financial performance, commitment to innovation, and partnerships with industry leaders, Credo is an attractive investment opportunity. The company’s stock has seen significant growth, and its potential for future growth makes it a compelling choice for investors.

Leadership and Expertise
Credo’s Board of Directors includes experienced industry leaders, such as Brian Kelleher, the former Senior Vice President of GPU Engineering at NVIDIA, and Fariba Danesh, the Chief Operating Officer at PsiQuantum. These appointments bring deep expertise in GPU and AI systems, as well as semiconductor product development, to Credo’s leadership. The company’s leadership team is well-positioned to drive growth and innovation in the emerging optical market.