Credo Technology Group (CRDO) posted a stellar Q2 performance, with adjusted EPS of $0.07, a remarkable 600% year-over-year increase, and well above the $0.01 estimate. Revenue rose 64% year-over-year to $72 million, significantly beating expectations of $66.5 million. Gross margins expanded to 63.2% from 59.3% in the prior year, highlighting the company’s ability to improve operational efficiencies amid surging demand for its Active Electrical Cable (AEC) products.
AI deployments emerged as a central theme, with CEO Bill Brennan highlighting stronger-than-expected demand driven by hyperscaler adoption. The company’s AEC products, which enable efficient connections within AI server clusters, are a critical component of modern data centers. Amazon Web Services (AWS) and Microsoft are key customers, while Oracle was highlighted as a potential new addition. This expanding customer base reinforces the strength of Credo's value proposition in AI-driven infrastructure.
Credo competes with heavyweights like Marvell Technologies (MRVL), Broadcom (AVGO), and Astera Labs (ALAB) in the AEC market. MRVL, a close competitor, is expected to report earnings tonight, which could provide additional insights into the AEC market's broader trajectory. However, Credo's ability to provide a full-stack solution of chips and cables positions it uniquely to retain leadership in this fast-growing segment.
Credo provided robust Q3 guidance, forecasting revenue between $115–$125 million, far exceeding consensus estimates of $85 million. The company also projected gross margins of 60.6%–62.6%, signaling continued profitability as revenue scales. For FY25, Credo expects revenue growth to exceed 100% year-over-year, with FY26 baseline growth projected at 50%. These strong numbers underscore the inflection point management anticipated, driven by AI deployments and deepening customer relationships.
Key areas of focus for investors include the scalability of Credo's production capacity, particularly as the company expands AEC manufacturing in Malaysia. With demand exceeding expectations, additional capacity increases of 50–100% could be necessary. Investors will also monitor the adoption of higher-speed AECs (100G/lane) and attach rates, which are critical to sustaining growth. Furthermore, any shifts in sentiment around AI spending could impact near-term demand.
The market responded enthusiastically to Credo's results and guidance, with the stock soaring 33% in pre-market trading. This follows an already impressive 145% rise year-to-date, reflecting investor confidence in Credo's leadership in the AEC market and its alignment with secular AI trends. Analysts quickly raised price targets, with Bank of America doubling its target from $27 to $80 and Barclays hiking its estimate from $32 to $80, citing multi-year growth potential.
Analysts across the board remain bullish, with Bank of America highlighting a shift in Credo's model from sales growth to better earnings growth, supported by expanding margins and increasing adoption. Credo now trades at a premium valuation based on its 60x CY26E P/E, in line with higher-end comps. Despite risks tied to AI sentiment and competition, analysts view Credo as uniquely positioned to capitalize on a multi-year adoption cycle, driving sustained growth.
Credo’s Q2 results and outlook reaffirm its position as a market leader in AECs, a critical component of AI data centers. The company’s ability to innovate, expand capacity, and deepen customer relationships positions it for long-term success in a high-growth industry. While competition remains intense, Credo’s full-stack solution and strategic partnerships with hyperscalers like Microsoft and AWS give it a competitive edge. The strong guidance and stock rally highlight growing investor confidence, making Credo a compelling opportunity in the AI infrastructure space.