Verdict
Investment Thesis: a defensive BUY with disciplined execution and tactical position sizing
Credo Technology has emerged as a leading provider of high-speed connectivity solutions for AI infrastructure, delivering explosive 274% year-over-year revenue growth driven by Active Electrical Cable (AEC) shipments to hyperscalers. However, the stock trades at a substantial premium, approximately 40-44x trailing sales, pricing in continued flawless execution amid intensifying competition and potential technology disruption.
Key Metrics at a Glance:
| Metric | Value |
|---|---|
| Current Price | $144.17 |
| Market Cap | $24.94B |
| 52-Week Range | $29.09 – $176.70 |
| P/E Ratio (TTM) | 212.4x |
| P/S Ratio (TTM) | 40.5 – 44.5x |
| EPS (TTM) | $0.68 |
| FY26E EV/Sales | ~19.8x |
1. The Bull Case: Why CRDO Commands a Premium
Explosive Growth Trajectory
Credo has transformed from a $193M revenue company in FY24 to:
- FY25: $436.8M (+126% y/y)
- Q1 FY26: $223.1M (+274% y/y)
- Stock Performance: +289% over six months (through Oct 2025)
This is a paradigm shift driven by AI infrastructure buildout at hyperscalers.
The AEC Moat: A Genuine Competitive Advantage
Credo’s core strength lies in Active Electrical Cables (AECs) with proprietary advantages:
- ZeroFlap Technology: Delivers up to 1,000× higher reliability than traditional optics by virtually eliminating link flaps – critical for error-intolerant AI training fabrics
- Power Efficiency: Materially lower power consumption versus optical alternatives at short-to-mid reach (up to ~7m)
- Integrated Stack: SerDes/DSP IP plus PILOT telemetry tools accelerate deployment and qualification
- 200G SerDes Reusability: Same SerDes design underpins Ethernet, PCIe, and other protocols – simplifying execution and reducing R&D costs
Customer Diversification Progress
A key risk is improving:
- Q1 FY26 Mix: Customer B (35%), Customer C (33%), Customer D (20%)
- FY25: Single customer represented 67% of revenue
- Trajectory: Management targeting 3-4 customers each at ≥10% of revenue
Three hyperscalers now exceed 10% each, with a fourth beginning to contribute meaningfully.
Product Portfolio Expansion
AECs (Current Revenue Driver):
- Replacing direct-attach copper cables (DACs)
- 75% lower power, 50% lower cost vs. optics at 1-3m
- Expanding from intra-rack to rack-to-rack applications (up to 7m)
Optical DSPs (High-Growth Opportunity):
- On track to double revenue in FY26
- 800G transceiver deploying at U.S. hyperscaler
- 1.6T “Bluebird” DSP advancing to 224G per lane
PCIe Gen6 Retimers (Future Catalyst):
- Toucan Gen6 achieved full PCI-SIG compliance
- Design wins targeted in CY2025
- Production revenue expected in CY2026
- Addresses scale-up fabric connectivity
2. The Bear Case: Reality Check at $144
Valuation Stretched by Any Standard
Let’s be blunt: CRDO trades at 40-44x trailing sales and ~20x forward CY26 EV/Sales. To put this in perspective:
| Company | CY26E EV/Sales | Business Profile |
|---|---|---|
| CRDO | ~19.8x | Focused connectivity, AEC-dominant |
| ALAB | ~35x | Pure-play PCIe, higher growth |
| MRVL | ~7.5x | Diversified interconnect/optics |
Scenario Analysis (from analyst research):
| Scenario | F27E Sales | GM | EV/S Multiple | Implied Price | vs. Current |
|---|---|---|---|---|---|
| Bear | $1.2B | ~62% | 16x | ~$116 | -20% |
| Base | $1.3B | ~64% | 20x | ~$157 | +8% |
| Bull | $1.4B | ~66% | 24x | ~$202 | +38% |
Key Takeaway: Even the base case suggests only ~8% upside from current levels, with meaningful downside risk if execution falters.
Competitive Headwinds Intensifying
1. Optical Displacement Risk at Higher Speeds
As networks migrate to 200G-per-lane and 1.6T ports, optical solutions may expand share:
- Broadcom and Marvell are shipping 1.6T optical ecosystems
- Co-packaged optics (CPO) momentum building at AI scale
- Experts predict more material optical adoption over 2-3 years
- Credo is investing via Bluebird DSP and LRO options, but remains subscale
Market Bifurcation Emerging:
- Near-rack (up to ~7m): AECs dominant
- Longer reach + densest AI tiers: Optics scaling
2. PCIe Gen6 Retimer Battle
Credo faces formidable incumbent Astera Labs in PCIe Gen6:
- Astera’s Aries 6 retimers already ramping to production
- Strong NVIDIA validation and COSMOS software suite
- Astera’s SCMs (Signal Conditioning Modules) extend PCIe over AEC to ~7m
- Multi-vendor qualification takes time – single-vendor momentum can lock in share
Broadcom’s early Gen5/Gen6 retimers reportedly struggled at customers, but Marvell is also entering the market.
3. Customer Concentration Remains Elevated
Despite improvement:
- Largest customer still at 35% of Q1 FY26 revenue
- Top 3 customers represent 88% of revenue
- Hyperscaler capex timing is lumpy and non-linear
- Accounts receivable: Customer A represented 68% at Q1 FY26 end (down from 86%)
A single hyperscaler pausing or cutting back creates significant volatility.
Margin Sustainability Questions
- Q1 FY26 GAAP GM: 67.4%
- Long-term target: 63-65%
Management guides for mix-driven variability as optical DSPs and PCIe retimers scale. Current margins are above sustainable range – normalization is likely as product mix evolves.
Supply Chain & Geopolitical Risks
- Fabless model: Dependent on TSMC and Asia OSATs
- $15.5M in purchase commitments, $7.9M in refundable deposits
- Allocation risk if demand slips or geopolitical tensions escalate
- Single-foundry exposure concentrates risk
Dilution Overhang
New $750M ATM equity program introduces potential dilution depending on usage and timing.
3. Performance Since IPO: A Stunning Run
IPO: January 2022
Stock Performance:
- From IPO to recent peak (~$176): Extraordinary gains
- Six-month surge into Oct 2025: +289%
- 52-week range: $29.09 – $176.70 (current: $144.17)
Revenue Transformation:
- FY24: $193.0M
- FY25: $436.8M (+126% y/y)
- Q1 FY26: $223.1M (+274% y/y)
Operating Leverage:
- GAAP gross margins: 61.9% (FY24) → 67.4% (Q1 FY26)
- Q1 FY26: Non-GAAP net income $98.3M on $223.1M revenue
What Drove the Rally:
- AI infrastructure boom – hyperscalers racing to build GPU clusters
- AEC adoption accelerating as copper proves viable at 100G/200G-per-lane
- Customer diversification reducing single-customer risk
- Optical DSP traction providing growth optionality
- Sector momentum in high-speed interconnects
Recent Volatility: Notable pullback in late September 2025 amid broader pressure on high-beta AI beneficiaries. Analyst commentary listed CRDO among high-volatility names at risk of downside reversion.
4. Competitive Landscape & Market Structure
The Copper vs. Optical Debate
| Use Case | Copper AEC Advantages | Optical Advantages | Share Trajectory |
|---|---|---|---|
| Intra-rack, 100G/lane (800G) | 75% lower power, 50% lower cost vs. optics; ZeroFlap reliability | Longer reach | AECs gaining |
| Inter/rack-to-rack, 100G/lane | De facto standard; up to 7m deployments; 1,000× reliability | Preferred beyond short-to-mid reach | AECs expanding to 7m; optics for longer runs |
| 200G/lane (1.6T) | Credo expects AEC adoption at near-rack; copper supply chain improving reach | Broadcom/Marvell shipping 1.6T ecosystems; CPO momentum | Bifurcated: AECs near rack; optics for long reach and densest tiers |
Key Competitors
Broadcom (AVGO):
- Tomahawk 6 brings 200G SerDes with longest passive-copper reach
- “Davisson” CPO highlights power/reliability focus for 1.6T AI networks
- Integrated switching and optics – formidable ecosystem
Marvell (MRVL):
- Leadership in 800G/1.6T optics
- Shipping 200G/lane 1.6T PAM4 DSPs
- Advancing 224G SerDes, CPO/NPO platforms
- Expects rapid growth in PAM-based AECs/retimers as scale-up matures
- Valuation: ~7.5x CY26 EV/Sales (much cheaper than CRDO)
Astera Labs (ALAB):
- Aries 6 PCIe Gen6 retimers ramping to production
- SCMs extend PCIe over AEC to ~7m
- COSMOS software deepens interoperability and observability
- Strong NVIDIA validation
- Valuation: ~35x CY26 EV/Sales (higher than CRDO, reflecting pure-play PCIe growth)
Where Credo Wins vs. Where It Struggles
Advantaged:
- Category leadership in AECs with ZeroFlap reliability and lower power
- Integrated stack plus PILOT telemetry for faster qualification
- 200G SerDes reuse across protocols
- Hyperscaler follow-through – three 10%+ customers, fourth ramping
Disadvantaged:
- Subscale in 1.6T optics/CPO against Broadcom and Marvell
- PCIe Gen6 retimers face incumbent Astera already in production with strong software
- Smaller R&D budget vs. diversified giants
5. Key Risks & Weaknesses
- Customer Concentration: Top 3 customers = 88% of Q1 FY26 revenue
- Competitive Response: Broadcom/Marvell active in high-speed connectivity; sustained out-execution required
- Optical Displacement: As networks migrate to 200G-per-lane and 1.6T, optical share may expand – copper’s window may narrow
- Supply Chain: TSMC/OSAT dependence exposes to allocations, inflation, geopolitical friction
- Margin Normalization: Current 67.4% GAAP GM above 63-65% LT target; mix shift likely compresses margins
- Dilution: $750M ATM program
- Valuation: At 40-44x trailing sales, stock prices in perfection – any stumble triggers multiple compression
6. Near-Term Catalysts (6-18 Months)
| Catalyst | Timing | What to Monitor |
|---|---|---|
| Fourth+ Hyperscaler Ramps | FY26 in flight | Progress toward 3-4 customers at 10%+ each; largest-customer mix trend |
| Optical DSP Momentum | FY26-CY26 | Delivery against plan to “double” optical revenue in FY26; Bluebird design-ins post CIOE/ECOC demos |
| PCIe Gen6 Retimers (Toucan) | Design wins CY25; production CY26 | PCI-SIG compliance, OEM/ODM qualifications, named design wins, first production revenue |
| 200G-per-lane/1.6T Transition | FY26-CY26 | Availability and early deployments of 200G-lane products; customer references for 800G/1.6T module ramps |
| Rack-to-Rack Copper (ZeroFlap AEC) | Scaling through FY26 | Orders/shipments for 3-7m AECs; hyperscaler commentary on reliability in liquid-cooled dense racks |
Q2 FY26 Guidance: $230-240M revenue
7. Investment Strategy: Tactical Execution
Decisive Sentiment: BUY with Discipline
Credo benefits from secular AI networking tailwinds and a defensible AEC franchise, but the risk/reward is balanced-to-constructive at current premium valuation. This is a tactical buy requiring active management, not a buy-and-hold compounder.
Entry & Exit Framework
Scale-In Bands:
- Target Entry: Below 18-19x CY26 EV/S (~$125-132/share)
- Current Price ($144.17): Slightly above ideal entry, but acceptable for moderate initial position
Core Holding Range:
- Target: 20-22x EV/S (~$145-160/share)
Trim Bands:
- Reduce: Above 24x (~$166/share)
Stop-Loss Triggers:
- PCIe production slipping past 2026
- Customer count stalling below 4×10%
- Gross margin dropping below 63% LT range
- Sustained ATM dilution lifting share count >10% over 6 months
Position Sizing
- Core Position: 2-4% of portfolio
- Add on Dips: 1-2% below entry band
- Time Horizon: 6-18 months (brackets FY26 milestones)
Options Overlay
- Protective Puts: 3-6 month ATM puts straddling earnings/guidance to cap drawdowns
- Zero-Cost Collar: Sell OTM calls (above $166) to finance puts when multiples re-rate toward upper band
- Stock Replacement: Convert portion of shares to 6-12 month call spreads into optical/PCIe milestones – retain convexity with less capital at risk
8. Better Alternatives & Portfolio Construction
Marvell Technology (MRVL): Superior Risk-Adjusted Value
Why MRVL > CRDO:
- Valuation: ~7.5x CY26 EV/Sales (62% cheaper than CRDO)
- Diversification: Breadth across switching, PAM4 DSPs, retimers, silicon photonics
- Exposure: Levered to both scale-up and scale-out AI fabrics
- Track Record: Established player with deeper R&D, broader customer base
- Optical Leadership: Shipping 200G/lane 1.6T PAM4 DSPs; advancing CPO/NPO
Portfolio Allocation:
- 60% MRVL / 40% CRDO for balanced interconnect exposure
MRVL offers the AI connectivity thesis with less valuation risk and more diversification. If you had to choose one, MRVL is the better buy.
Astera Labs (ALAB): Higher-Beta Alternative
For Aggressive Growth Seekers:
- Valuation: ~35x CY26 EV/Sales (higher than CRDO)
- Focus: Pure-play PCIe connectivity – retimers, Scorpio switches
- Momentum: Aries 6 Gen6 ramping; Scorpio-P exceeding 10% of sales; Scorpio-X for scale-up in pre-production
- Software: COSMOS suite strengthens ecosystem lock-in
Risk/Reward: ALAB offers higher growth optionality but greater multiple compression risk than CRDO. If PCIe dominates scale-up fabric, ALAB wins big – but if optical PCIe/CXL arrives sooner (2-3 years per expert calls), ALAB faces displacement risk.
9. Hedging Strategy
Market Protection
- Semiconductor Index Put Spreads: Buffer macro shocks (SOX or SMH)
Competitive Hedge
- Long MRVL: Diversified interconnect hedge – if optical gains share, MRVL benefits
- Long ALAB: PCIe/switch exposure – if scale-up favors retimers, ALAB captures upside
Event Hedging
- Options Collars: Around earnings dates and PCIe milestone announcements
- Pairs Trade: Long CRDO / Short high-valuation AI beneficiaries during sector rotation risk
10. Expert Insights: What Practitioners Say
AEC Leadership:
- “Credo is a leading AEC provider with credible low-power credentials, proven debug/telemetry, and trusted delivery”
- “AECs are a ‘Goldilocks’ option for short-reach intra/near-rack links – roughly up to 10-12 meters”
Use-Case Boundaries:
- “Optics retain the edge for longer reach; copper’s window may narrow as 200G-per-lane matures”
Hyperscaler Preferences:
- “Buyers emphasize speed to deploy, qualification burden, operational simplicity – favoring established, end-to-end stacks”
- “Pre-ordering years ahead; owning SerDes IP helps, but vendors must stay tightly aligned to roadmaps”
Optical Trajectory:
- “Near term, copper remains favored around GPUs given optical thermal/reliability constraints”
- “Expect more material optical adoption over ~2-3 years, though production is nascent today”
- “LPO momentum and co-packaged/near-device optics (e.g., COBO-style ring) learning now”
Retimer Competition:
- “NVIDIA’s validation of Astera weighs on key sockets”
- “Performance can trump power in AI racks; validation bottlenecks and single-vendor momentum can constrain multi-vendor share”
11. Final Verdict: A Tactical Buy, Not a Conviction Hold
The Bottom Line
Credo Technology has carved a defensible niche in AI connectivity with its AEC franchise and is executing well on diversification and product expansion. However, at 40-44x trailing sales and ~20x forward EV/Sales, the stock prices in continued flawless execution with limited margin for error.
Investment Grade: B+ (Tactical Buy)
Pros:
- Explosive growth (+274% y/y)
- Genuine AEC moat with ZeroFlap technology
- Customer diversification improving
- Optical DSP and PCIe Gen6 optionality
- Secular AI tailwind
Cons:
- Valuation stretched (40-44x P/S)
- Customer concentration risk (88% from top 3)
- Optical displacement risk at higher speeds
- Formidable competition (Broadcom, Marvell, Astera)
- Margin normalization likely
- Supply chain/geopolitical risk
Recommended Action
- For New Positions:
- Wait for pullback to $125-132 (18-19x EV/S) for better entry
- If entering at $144, keep position moderate (2-3%)
- For Existing Holders:
- Trim above $166 (24x EV/S)
- Use protective puts or collars to manage downside
- Monitor Q2 FY26 results (guidance: $230-240M)
- Portfolio Construction:
- Better Buy: Marvell (60%) / Credo (40%) for balanced interconnect exposure
- Aggressive Alternative: Astera Labs for pure-play PCIe growth
- Time Horizon:
- 6-18 months to bracket FY26 milestones
- Reassess after PCIe Gen6 design win announcements (CY25) and production ramp (CY26)
The Contrarian Take
If you believe copper AECs will maintain dominance through the 200G-per-lane transition and Credo can successfully break into PCIe Gen6 against Astera, the current valuation offers a 12-18 month window for outsized returns. But this is a trade, not an investment – the window closes as optical economics improve and competitive dynamics evolve.
For most investors, Marvell offers better risk-adjusted returns at 62% lower valuation with more diversification.
Key Monitoring Metrics
Quarterly:
- Customer concentration (number of 10%+ customers)
- Largest customer % of revenue
- AEC vs. optical vs. PCIe revenue split
- Gross margin vs. 63-65% LT range
Product Milestones:
- PCIe Gen6 design wins/qualifications
- PILOT rollout on retimers/AECs
- Bluebird sampling-to-shipping conversion
- AEC 7m spec adoption
Competitive:
- Broadcom/Marvell optical ecosystem progress
- Astera Labs retimer/switch traction
- CPO/LPO adoption commentary from hyperscalers
Financial:
- ATM usage affecting share count
- Operating leverage trajectory
- Inventory/receivables for demand signals
This analysis is for educational purposes only and not personalized investment advice. Trading involves risk and may not be suitable for all investors.
