The data center interconnect chip supplier Credo Technology Group Holding Ltd (CRDO.US) has delivered results that far exceeded market expectations, benefiting from the ongoing surge in AI infrastructure development and robust demand for high-speed interconnect products. The company's revenue for the fourth quarter of fiscal 2026 soared by over 150% year-over-year, while management projects that full-year revenue for fiscal 2027 will increase by approximately 80% compared to the previous year.
Credo Technology Group Holding Ltd (CRDO.US)
Credo's stock price rose about 7% in pre-market trading on Tuesday but gave up those gains after the market opened. At the time of writing, the stock was down 3.22% to $218.69. Credo's Chief Financial Officer, Daniel Fleming, expressed strong confidence in the company's growth prospects for the coming year, anticipating that fiscal 2027 will continue the rapid expansion trend. The impressive performance guidance has also prompted a collective upward revision of earnings forecasts and price targets by Wall Street analysts.
Analyst Upgrades and Bullish Outlook
Needham analyst N. Quinn Bolton noted in a recent report that Credo expects roughly half of its new revenue in fiscal 2027 to come from its optical interconnect product portfolio, with the other half from its existing copper cable portfolio, primarily Active Electrical Cables (AEC). Concurrently, the company expects its non-GAAP gross margin for fiscal 2027 to remain roughly at fiscal 2026 levels, with operating expenses growing about 50%, significantly lower than the revenue growth rate, and a potential net profit margin reaching approximately 50%. Based on management's latest outlook, Needham raised its fiscal 2027 revenue forecast for Credo from $2.35 billion to $2.45 billion, reiterated its "Buy" rating, and increased the price target from $220 to $275.
Analysts at J.P. Morgan, led by Joseph Cardoso, stated that the latest guidance indicates the fiscal 2027 upgrade is primarily driven by the optical interconnect business rather than AEC products, suggesting a potentially more pronounced growth inflection point for the optical module business in the second half. However, they cautioned that the market should not interpret the more conservative AEC growth expectations as a shrinking market opportunity. Management reiterated that AEC remains the company's "core growth engine" and noted increasing adoption rates among hyperscale cloud providers and emerging cloud service provider customers.
Furthermore, the ongoing transition of data center networks from 800G to 1.6T architectures, along with higher average selling prices (ASPs) for related products, is expected to provide long-term growth momentum. Based on this assessment, J.P. Morgan maintained its "Overweight" rating on Credo and raised the price target from $230 to $250.
Roth Capital also expressed optimism about the company's prospects, significantly raising its price target from $200 to $300 and maintaining a "Buy" rating. Roth analyst Suji Desilva pointed out that Credo's AEC products still have room for increased penetration among large hyperscale cloud customers and emerging cloud service providers. Simultaneously, the outlook for the company's optical interconnect business is promising, with its ZR/ZR+ optical transceivers supporting longer intra-rack connections and complementing its established, high-reliability AEC products for inter-rack connectivity.
The firm believes Credo will continue to benefit as data center network channel speeds keep increasing. Additionally, compared to its current revenue primarily from scale-out network interconnect, the company has significant growth potential in the future within the scale-up interconnect market for high-performance AI clusters.
Analysts Joseph Stauff and Eric Mondelblatt at Susquehanna also raised their price target for Credo, from $200 to $235, while maintaining a "Positive" rating. The analysts expect the company's scale-up business for AI cluster internal interconnects to begin contributing meaningfully in fiscal 2027, with the potential for larger-scale growth in fiscal 2028. Meanwhile, new product lines, such as Active Lightwave Cables (ALC) and Gearbox chips, are expected to enter mass production in fiscal 2028, opening new avenues for future growth.
Profitability Strength and Sector Impact
Beyond the revenue growth prospects, profitability performance has also pleasantly surprised the market. Susquehanna noted that the company's latest quarter gross margin was significantly higher than market expectations, and management's forecast for fiscal 2027 gross margin to remain largely stable year-over-year is notably better than the firm's prior expectation of a 300 basis point decline. However, the company expects operating expenses to grow about 50% year-over-year, higher than the firm's previous expectation of approximately 25%.
Boosted by Credo's strong results, the AI networking interconnect sector was active overall on Tuesday. Among peers, Marvell Technology (MRVL.US) surged 26%, Astera Labs (ALAB.US) gained over 7.8%, and Broadcom (AVGO.US) rose over 4%.
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