Credo Technology's 800G Optical DSP Wins and Hyperscaler Diversification Are Fueling an 85% Revenue Surge—Here's Why This Stock Could Be a Must-Buy Now

Credo Technology (NASDAQ: CRDO) is positioning itself as a critical player in the AI and hyperscaler-driven data infrastructure revolution, with its FY2026 revenue guidance now exceeding $800 million—an 85% year-over-year jump from fiscal 2025. This explosive growth isn't just a numbers game: it's underpinned by a strategic shift toward customer diversification, technological dominance in 800G optical solutions, and margin expansion that could propel this stock to new highs.

The 800G Optical DSP: The Catalyst for Credo's Growth

Credo's recent 800G optical DSP design win—a potential “largest ever” deal with a major hyperscaler—is the linchpin of its FY2026 outlook. These DSPs are the brains behind ultra-high-speed data transmission, enabling hyperscalers like Amazon, Microsoft, and Meta to build out AI infrastructure at scale. With demand for 800G links surging due to AI workloads, Credo's 3nm, 200G-per-lane DSP (offering 1.6Tb/s speeds) is becoming table stakes for next-gen data centers.

This technology leadership isn't just theoretical. In Q4 fiscal 2025, revenue hit $170 million, a 26% sequential jump and 180% year-over-year surge. The company's Q1 FY2026 guidance of $185–195 million (a 12% sequential increase at midpoint) hints at momentum building behind its optical and Active Electrical Cable (AEC) products.

Customer Diversification: A Game-Changer for Risk Mitigation

Credo's biggest unsung success? Reducing its reliance on Amazon. While Amazon still accounts for 61% of sales (down from 86% just a quarter ago), Microsoft and xAI now command 12% and 11%, respectively. By FY2026, Credo aims to have 3–4 customers each contributing over 10% of revenue—a stark contrast to its past overexposure to a single client.

This diversification isn't just about risk reduction; it's about tapping into a broader base of AI spend. Hyperscalers like Microsoft (Azure AI) and xAI (owned by Elon Musk's team) are ramping up their own AI infrastructure, and Credo's early wins with these players signal long-term staying power.

Margin Expansion: A Hidden Growth Lever

Credo isn't just growing top-line revenue—it's also improving profitability. The company guided for a 64%–66% adjusted gross margin in Q1 FY2026, with management confident margins will stay at the high end of its long-term target of 63%–65%. This is no small feat: as higher-margin optical products ramp (revenue expected to double in FY2026), Credo's cost structure benefits from scale.

Meanwhile, the company's focus on 3nm tape-outs and mask set investments (doubling FY2026 capex) may look risky on paper, but they're strategically placed to secure long-term design wins. With $431 million in cash, Credo isn't sweating the balance sheet.

Analysts Are Bullish—But the Street Still Underestimates the Opportunity

Needham's $85 price target (up from $80) isn't just a number—it's a reflection of a “Buy” rating and a 35% upside from current levels. Barclays and Stifel have also jumped on board with $85 and $80 targets, respectively. Yet the consensus still sits at $72—a gap that suggests the market hasn't yet priced in the full potential of Credo's diversification and margin tailwinds.

Why Buy Now? The Risk/Reward Is Lopsided

This isn't a high-risk bet. Credo's FY2026 guidance is grounded in real wins with hyperscalers and a product pipeline (like its PILOT software platform for debugging AI systems) that's already delivering. The shift from Amazon dominance to a multi-hyperscaler model reduces execution risk, while the 800G optical boom creates a multiyear tailwind.

For investors, the timing is perfect. The stock's 25% pop at the open on earnings day suggests momentum is building—but it's still undervalued relative to its growth trajectory. With institutional ownership at 80%, this isn't a fly-by-night story.

The historical performance of this strategy reinforces its potential: during periods when revenue surpassed expectations, the stock delivered an average return of [X]% over the subsequent 60 days, with a [Y]% success rate. Even during volatile markets, drawdowns remained limited, underscoring the strategy's resilience.

Final Call: Buy Credo Now—The AI Infrastructure Boom Is Just Beginning

Credo's blend of technological leadership, hyperscaler diversification, and margin discipline makes it a rare growth stock with a tangible path to sustained outperformance. At current prices, the risk/reward is skewed heavily in investors' favor. With FY2026 revenue set to nearly double and analysts pushing price targets higher, this could be one of the best calls you make in 2025.

The AI revolution isn't slowing down—and neither is Credo. This is a stock to own for the next 12–18 months.