Credo Technology Group Holding Ltd CRDO stock has slipped 9.1% in a month amid tumbling indices. Escalating trade tensions, potential supply chain disruptions and a possibility of a global economic slowdown led to a broader market sell-off. The tech sector has been hit the hardest, with tech-heavy NASDAQ having entered bear market phase.
However, this recent market turbulence and panic selling can be an opportunity for long term investors to buy potential winner stocks at dirt cheap prices.
CRDO gained 7.8% yesterday while markets bled, but the stock is down 58.6% below its 52-week high of $86.69. CRDO’s 9% fall is also much narrower than peers like Broadcom, Inc AVGO, Cirrus Logic, Inc CRUS and Marvell Technology MRVL as well as Electronic-Semiconductors industry’s declines.
Price Performance
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Broadcom, Cirrus Logic and Marvell Technology have declined 14.2%, 20.8% and 19.8%, respectively, while the sub-industry is down 20.4%. The broader Computer and Technology sector and S&P 500 Composite have registered declines of 12.5% and 9.7%, respectively, over the same time frame.
Is Credo worth investment, or should investors stay away from it? Let’s discuss
Demand for Solutions Amid AI Boom to Power CRDO Top Line
Amid exponential data growth and rapid AI proliferation, market demand for faster and energy-efficient connectivity solutions continues to increase. This bodes well for Credo. Credo is a provider of high-performance serial connectivity solutions for the data infrastructure market.
Strength in the Active Electrical Cables (AEC) product line is driving top-line expansion. AEC products experienced triple-digit sequential growth in the third quarter of fiscal 2025, driven by its 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 a portfolio of PCIe solutions, which will address the growing demand for AI scale-out and scale-up networks. The company expects the PCIe products to considerably expand its total addressable market. This expansion into PCIe connectivity further solidifies the company's competitive positioning in the high-performance computing and AI markets.
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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.
CRDO’s PCIe retimers 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 Technology for significant future revenue growth.
CRDO’s Efforts to Diversify Customer Base Prudent
Credo is making progress in diversifying its customer base. While 86% of revenue in the third quarter of fiscal 2025 came from a single end customer, the company noted that it has two additional hyperscalers in qualification and has already achieved volume production with three others. The company expects ramp up with these two hyperscalers in fiscal 2026. This diversification reduces the risks associated with customer concentration and enhances the stability of topline growth.
CRDO’s Robust Q4 Outlook
For the third quarter of fiscal 2025, CRDO reported $135 million in revenues, up 87% sequentially and 154% year over year, beating the Zacks Consensus Estimate by 12.5%. This surge was mainly driven by its largest hyperscale customer, which significantly scaled the production of AI platforms, reflecting the growing demand for AI-powered connectivity solutions.
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.
Analysts also seem bullish on the stock as reflected in strong upward revision for earnings estimates.
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CRDO Trades at a Premium
In terms of the forward 12-month Price/Sales ratio, CRDO is trading at 9.29, higher than the Electronic-Semiconductors sector’s multiple of 5.3. The premium valuation is justified to an extent by strong revenue growth prospects. As a company positioned in the high-growth data center space, the market is likely pricing in the potential for sustained growth as demand for high-speed data connectivity solutions rises.
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In comparison, Broadcom trades at a forward 12-month P/S multiple of 10.87, while Cirrus Logic and Marvell Technology are trading at a multiple of 2.35 and 5.15, respectively.
Conclusion: Buy CRDO Stock Now
CRDO presents a compelling investment opportunity due to its improving financial performance and healthy growth prospects despite competitive pressures and expensive valuation. The company’s earnings beat the Zacks Consensus Estimate in three of the trailing four quarters while matching on one occasion, with the average surprise being 29.72%. The stock’s recent pullback from its 52-week high presents a buying opportunity, given the company’s strong growth prospect.
CRDO currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
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