Bull of the Day: Credo Technology (CRDO)
Credo Technology Group (CRDO) is a key supplier of high-performance serial connectivity solutions for the hyperscale datacenter, 5G carrier, enterprise networking, HPC (high-performance computing), and AI/ML markets.Credo is located in the center of the AI revolution in San Jose, CA.With sales growing 120% this fiscal year to $425 million, one of Credo's high demand products is their line of Active Electrical Cables (AEC) which provide high-speed connectivity solutions to data centers and enterprises with heavy AI and cloud computing needs.Credo also makes Digital Signal Processing (DSP) chipsets to facilitate high-bandwidth data transfer with low energy usage.Credo's largest and most strategic customers are leading hyper-scalers like Microsoft (MSFT) and Amazon who use Credo's AECs to support AI and cloud infrastructure.And its biggest competition comes from Broadcom (AVGO) and Marvell (MRVL) in connectivity solutions for the AI Economy.NVIDIA is the AI Market MakerAs I've said for almost eight years, Jensen & Co. have been creating new industries we didn't even know we needed. Once modern data enterprises and research universities caught on to what GPU-CUDA "massively parallel architectures" could do for them, they literally created new uses cases by the thousands per year.When you can simulate anything, use synthetic data to do so, and then run billions of iterations on your experimental idea in a matter of hours, innovation happens much faster.Thus Jensen talks about 1,000-fold advances in science, engineering, and social challenges. And then you understand why NVIDIA (NVDA) power tools are in such demand for the Global 2000 corporations, plus universities, plus nation-states who need to secure and "mine & model" their own data.In my NVIDIA (NVDA) "Top Picks" video on April 21, I compared the new Huawei supercomputer offering to NVIDIA's GB200 NVL72.And one of my points of focus was on the high-speed, low-latency connectivity required for these new rack-scale architectures. I didn't mention Credo, but I'm very curious about how closely they are working together since Jensen likes that "copper is cheaper" and perfectly still useful for direct connections between GPUs in racks.A Fly in the AnointmentThis all sounds great for Credo going forward, especially as they are projected to grow EPS this fiscal year by a whopping 600%!But the stock was richly valued before their Q3 FY2025 (ended April) report. Right now at an $8 billion market cap on forward sales of over $500 million, they are conservatively trading over 16X sales.By early March when they reported, CRDO shares had been cut in half from $80 to $40 in just a month just to get back down to earth at 16X sales. So it's safe to say they were trading near 30X sales in Q1 near the stock highs above $80.Part of the big pessimism -- or realism -- even before the trade war tumult, was that Credo's Q3 38% EPS beat and giant 12.5% revenue beat was built around a single large customer who may have contributed as much as 85% of that topline: Amazon.While they didn't disclose Amazon (AMZN) as the big kahuna in their operations, many analysts had sufficient reason to suspect this was the case."As we shared last quarter, we had seven customers that contributed more than 5% of revenue," said Credo Chief Financial Officer Dan Fleming. "And going forward, we expect that three to four customers will be greater than 10% of revenue in the coming quarters and fiscal year, as additional hyperscalers ramp to more significant volumes."I think Credo can keep growing and we won't see another quarter so dependent on one large company.What Makes Credo's AECs More Efficient Than Other Cables?Credo's Active Electrical Cables (AECs) stand out for their efficiency and performance in modern data center environments, especially compared to traditional Direct Attached Copper (DAC) and Active Optical Cables (AOC). Here are the key factors:1. Substantial Power SavingsCredo's AECs consume about 50% less power than traditional DACs and significantly less than AOCs, making them highly energy efficient.For example, their second-generation HiWire LP SPAN AECs reduce power consumption by nearly half while increasing cable reach by 40% compared to the previous generation.2. Thinner, More Flexible CablesCredo's AECs use thinner copper (as slim as Cat 6 cables), reducing cabling volume by up to 75% compared to passive DACs. This makes them easier to route and manage in dense data center environments.The thinner, lighter cables also support longer distances and tighter bend radii, which is critical for modern rack-to-rack and server-to-switch connections.3. Superior Performance and ReliabilityIntegrated digital signal processors (DSPs) and retimers in Credo's AECs deliver better signal integrity, enabling higher data rates (up to 800G and 1.6T) over longer distances without degradation.These cables offer extreme reliability, with Mean Time Between Failure (MTBF) ratings up to 100 million hours, minimizing downtime and maintenance.4. Plug-and-Play SimplicityCredo's AECs are hot-swappable and easy to deploy, providing a drop-in replacement for AOCs and DACs without the need for additional components or complex configuration.They also support advanced features like dual Top-of-Rack (TOR) redundancy for enhanced reliability in hyperscale data centers.5. Lower Environmental ImpactBy reducing power consumption and using less plastic and copper, Credo's AECs help customers decrease their environmental footprint.Relentless Connectivity Innovation for AINow that you know Credo's key "connector" role in the AI economy, let me highlight recent press releases that you should go find on their website if you are interested in learning more...March 18: Credo and XConn to Showcase Seamless GPU Cluster at NVIDIA GTCMarch 26: Credo to Showcase AI Scale Out Fabric Featuring Credo Optical DSPs at OFC 2025March 27: Credo Named a Winner of the 2025 Top Workplaces USA AwardApril 1: Credo Unveils the Lark Family - Setting a New Benchmark for Low-Power 800G Optical DSPsIf their innovation cadence maintains like this, I'm sure their big customer wins will keep growing. If you are really into the AI revolution like I am, watch this video from a Credo engineer that explains the chasm they just jumped last year...Credo OCP Global Summit 2024 Innovation Village Walk-ThruSheraz Mian and Zacks Top 10 PicksZacks Director of Research Sheraz Mian made CRDO one of his Top 10 Picks for this year. While the stock is off to a rough start for Q1, his description of their business was exceptional so I want to share it for your own due diligence...Credo aims to break bandwidth barriers in the data infrastructure market. It provides secure, high-speed connectivity solutions that deliver improved power efficiency as data rates and corresponding bandwidth requirements increase exponentially throughout the data infrastructure market.Specifically, Credo's SerDes and DSP chips optimize data transfer by enabling high-speed, error-free communication within data centers, while its HiWire Active Electrical Cables (AECs) provide efficient, high-bandwidth connections between servers to support AI workloads and large-scale data processing.Many important trends are driving the data infrastructure market, such as cloud workloads, streaming video, 5G wireless deployment, the expansion of Internet of Things (IoT), and, most notably, the growing adoption of artificial intelligence. These trends have all created an explosion of data that has stressed existing infrastructure and forced a major shift.(end of Sheraz Mian observations)The rapid adoption of AI and the need for efficient data center connectivity are driving increased demand for Credo's products among top-tier builders of the AI Economy.Credo is expanding its customer base to include all the major technology firms -- from Apple to Tesla -- and multiple large enterprises in energy and education in the midst.Bottom line on CRDO: If Sheraz hadn't put Credo on my radar, I might not have studied it enough. Now that I know better, I think its a buy in the $40s.
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