Credo Technologies (CRDO) stock surged after its Q2 FY25 earnings came in materially higher than anticipated and management reiterated the company’s growing importance in the rollout of artificial intelligence (AI). I’m bullish on this stock, noting incredibly strong growth forecasts and the potential to outperform these forecasts, given the emphasis on enhancing performance and energy efficiency in data centers. Despite already impressive share price performance, Credo could be a multibagger from here still.
Stay Ahead of the Market:
- Discover outperforming stocks and invest smarter with Top Smart Score Stocks
- Filter, analyze, and streamline your search for investment opportunities using Tipranks' Stock Screener
Here’s Why Credo Is the Next Big Thing in AI
One reason for my bullish thesis is that Credo’s hardware will likely be the next big thing in AI, particularly in the realm of custom networking solutions for data centers. As AI workloads continue to grow in volume and complexity, hyperscalers — companies like Amazon (AMZN) and Google (GOOGL) — are increasingly seeking to work with vendors that can help customize efficiency aspects of their AI infrastructure.
Networking is a critical efficiency component, and Credo is well-positioned to capitalize on this trend. The company’s innovative Active Electrical Cables (AECs) are gaining significant traction in the market due to their reliability, lower power consumption, and reduced costs compared to traditional laser-based optics. This technology is particularly crucial for AI deployments and other latency-sensitive applications, where energy efficiency and high-speed connectivity are paramount.
This was highlighted by CEO Bill Brennan in the Q2 earnings call when he said, “AI cluster architectures are evolving rapidly, driven by advancements in processing, cooling and power sourcing. These advancements enable increasingly dense and scalable clusters where back-end network reliability has become paramount.”
What’s more, Credo has developed strategic partnerships with major hyperscalers, including Microsoft (MSFT) and Amazon, further solidifying its position in the AI infrastructure market. Brennan believes that this, along with the company’s focus on customer-centric innovation, makes Credo the market leader.
Credo’s Recent Performance and Forecasts
Credo’s recent financial performance has reinforced my bullishness, with the company reporting a revenue of $72 million for the second quarter of Fiscal 2025, marking a significant 21% sequential increase and a 64% year-over-year growth. This strong performance was driven by demand across its three main product lines — AEC, optical, and line card retimers.
Looking ahead, Credo’s financial outlook is highly promising. The company projects revenue between $115 million and $125 million for Q3 2025, indicating substantial year-over-year growth — current analysts’ expectation is pretty much bang in the middle of this. This forecast underscores Credo’s strategic positioning and growth potential in the high-speed connectivity solutions market.
Moving forward, industry analysts expect Credo to increase earnings at an incredible rate — 474.4% is forecasted for this current year — outpacing its larger peers. The company’s management expects continued growth beyond Fiscal 2025 as market adoption expands across the data center ecosystem. While forecasts vary, I believe there is a huge amount of spending to come on AI data centers. This is signaled by Microsoft’s $80 data center spending plan for 2025 alone. The UAE’s DAMAC intends to invest $20 billion in US data centers.
Credo’s Valuation Indicates High Risk, but High Reward
Credo’s valuation reflects its strong growth potential in the AI infrastructure market, but there’s clearly an element of risk introduced by the valuation multiples. The stock is currently trading at 138.1x forward earnings, putting it at a 455% premium to the broader information technology sector. Even accounting for the company’s $383 million in cash, the stock still looks expensive. However, it’s all about growth here, and that forward price-to-earnings (P/E) ratio is set to drop to 38x by 2028.
In turn, this huge forecasted earnings growth leads to a price-to-earnings-to-growth (PEG) ratio of 1.45, which reflects a 20% discount to the sector as a whole. What’s more, I believe there is capacity for the stock to outperform these forecasts still, noting Credo’s recent track record. Credo has only missed earnings expectations in one of the last 12 quarters, and some analysts may suggest the current forecasts are a little conservative.
Is CRDO Stock a Buy, According to Analysts?
On TipRanks, CRDO comes in as a Strong Buy based on nine Buys, one Hold, and zero Sell ratings assigned by analysts in the past three months. The average CRDO stock price target is $80.40, implying about 6.4% upside potential.
The Bottom Line on Credo Technologies Stock
I’m bullish on Credo Technologies, and view the stock as a standout opportunity in the AI infrastructure sector. With its hardware solutions for AI data centers, such as AEC, and strategic partnerships with hyperscalers like Microsoft and Amazon, Credo is well-positioned to lead in optimizing energy-efficient data center networks.
The company’s impressive financial performance, coupled with robust growth forecasts and a PEG ratio below sector averages, underscores its potential to outpace expectations. While the stock’s high valuation reflects inherent risks, its historical ability to consistently deliver strong results suggests upside potential remains. For investors seeking exposure to AI-driven growth, Credo is a very compelling opportunity, offering a blend of innovation and market leadership in a rapidly evolving sector.
