Is the AI Connectivity Pioneer a Buy at $141.60?

Credo Technology Group has emerged as the dominant supplier of high-speed connectivity solutions powering the world's largest AI clusters. With 88% market share in Active Electrical Cables (AECs), record Q2 FY26 revenue of $268 million (up 272% year-over-year), and three newly announced multi-billion-dollar growth pillars, Credo is positioned at the epicenter of AI infrastructure buildout.

At $141.60 per share, the company trades at approximately 53x forward earnings on fiscal 2027 estimates. This premium valuation reflects both extraordinary execution and aggressive growth expectations embedded in the price. The key question: can Credo sustain hypergrowth while defending its dominant market position against well-capitalized competitors?

Our verdict: Accumulate on pullbacks. Credo represents a high-quality compounder with structural positioning in AI infrastructure, but current valuations demand flawless execution. Position sizing should reflect the asymmetric risk profile—meaningful upside exists if new product pillars deliver, but limited margin for error at current levels.

The Business: Purple Cables That Power AI

Founded in 2008 by semiconductor veterans and led by CEO Bill Brennan since 2013, Credo pioneered the Active Electrical Cable category that has become indispensable for AI infrastructure. The San Jose-based company operates at the intersection of two megatrends: the exponential growth in AI compute requirements and the fundamental physics constraints of moving data at terabit-per-second speeds.

Credo's distinctive purple AECs—costing $300-500 each depending on volume—have become the de facto standard for inter-rack connectivity in hyperscaler data centers. These are narrow-gauge copper cables with integrated retimers, gearboxes, and forward error correction circuitry that deliver speeds up to 1.6 terabits per second with what management calls "ZeroFlap" reliability—claiming 1,000x fewer connection failures than optical alternatives while consuming roughly half the power.

Why does reliability matter so much? As CEO Brennan explained: "A single link flap can literally shut down an entire data center." When hyperscalers are running AI training runs on million-GPU clusters costing hundreds of millions of dollars, every second of downtime is extraordinarily expensive. This is why AECs have displaced optical solutions for rack-to-rack connections up to 7 meters.

Amazon Web Services CEO Matt Garman recently posted images of their Trainium AI chip racks prominently featuring Credo's purple cables. Meta's example GPU racks at industry conferences display them as well. The company doesn't name customers, but analysts have identified Amazon, Microsoft, and likely Oracle and Meta as key accounts.

Financial Performance: Staggering Growth

Q2 FY26 Results (Quarter Ended November 1, 2025)

The most recent quarter delivered Credo's strongest results in company history:

These results reflect hyperscaler adoption at scale. Four hyperscalers each contributed more than 10% of revenue in Q2, with a fifth beginning to contribute initial revenue. Customer forecasts have strengthened across the board as AI clusters scale toward million-GPU configurations.

Forward Estimates

Management guided Q3 FY26 revenue of $335-345 million (27% sequential growth), significantly above consensus expectations of $247 million. For full fiscal 2026, the company now expects 170%+ revenue growth with net income quadrupling.

Five Growth Pillars: Tripling the TAM

The most exciting development from the recent quarter was management's announcement of three entirely new growth pillars, each representing distinct multi-billion-dollar market opportunities. Combined with existing businesses, Credo now targets a $10+ billion addressable market—more than triple its opportunity 18 months ago.

1. Active Electrical Cables (AECs) — Core Business

Credo commands an estimated 88% market share in a segment projected to reach $4 billion by 2028 according to JPMorgan. AECs have become the standard for inter-rack connectivity, now scaling from 100-gig per lane to 200-gig per lane architectures. Revenue has grown double-digits sequentially and drives the bulk of current profitability.

2. IC Solutions (Retimers & Optical DSPs) — Scaling

Credo's optical DSP business is expected to double revenue in FY26, with a major hyperscaler design win described as potentially their largest ever. PCIe retimers targeting a $1+ billion market by 2027 provide additional growth vectors. The optical DSP portfolio (Dove, Lark, Bluebird families) supports 400G to 1.6T speeds.

3. ZeroFlap Optics — FY27 Revenue

From the earnings call: "We're currently in live data center trials with our lead partner, and we expect to begin sampling a second US hyperscaler later this fiscal year. Our ZF Optics solutions expand our addressable market to any length of connection within the data center. We anticipate initial revenue in fiscal 2027 and long-term another market that will be a multi-billion dollar opportunity."

This is a laser-based connectivity solution delivering AEC-level reliability through a custom optical DSP tightly integrated with Credo's software stack.

4. Active LED Cables (ALCs) — FY28 Revenue

Following the Hyperlume acquisition, Credo is pioneering a new connectivity category using micro-LED technology. From management: "ALCs will deliver the same reliability and power profile as an AEC, but in a thin gauge cable that can reach up to 30 meters and is ideal for row scale scale-up networks. Customer reaction has been very positive. We plan to sample the first ALC products to lead customers during our fiscal 2027, with initial revenue ramping in fiscal 2028. We believe the ALC TAM will ultimately be more than double the size of the AEC TAM."

This is potentially the most significant long-term opportunity—a market potentially exceeding $8 billion if management's "more than double" estimate proves accurate.

5. OmniConnect Gearboxes (Weaver) — FY28 Revenue

The most transformative announcement addresses the "memory wall" in AI infrastructure. From the call: "Today's on-package high bandwidth memory is capacity and throughput limited, as well as expensive and supply chain constrained. Weaver allows designers to move to commodity DDR memory and achieve up to 30 times more memory capacity and eight times the bandwidth... A game changer... We anticipate initial revenue in our fiscal 2028 with significant scaling thereafter."

For AI inference workloads where memory capacity often constrains performance, this could be genuinely transformational.

Competitive Position: Moats and Threats

Competitive Advantages

Proprietary SerDes Technology: Credo's foundational IP achieves equivalent performance to competitors while using older, more cost-effective manufacturing processes—the "n-1 advantage" that enables lower costs, better supply availability, and superior power efficiency.

Market Share Dominance: 88% AEC market share creates compounding benefits—each hyperscaler deployment validates the technology, builds operational track record, and deepens customer relationships.

Customer Switching Costs: Hyperscaler qualification processes require lengthy, rigorous testing cycles. Credo has developed 20+ custom SKUs, with each customization creating integration depth difficult to replicate.

IP Protection: Active patent licensing to third parties (Siemon, Amphenol, Volex) monetizes IP while acknowledging customer desire for supply diversification.

Competitive Threats

Marvell Technology: Has launched Alaska AECs directly competing in Credo's core market, with partnerships with major cable assemblers like Amphenol. Their Golden Cable initiative aims to expand the AEC ecosystem. Marvell anticipates their total AEC and retimer revenue will more than double year-over-year.

Broadcom: Dominates optical DSPs with 80%+ combined market share alongside Marvell. Deeper resources and broader customer relationships could pressure margins over time.

Astera Labs: Targets similar hyperscaler connectivity opportunities with chips reportedly in 80%+ of AI servers.

Co-Packaged Optics (CPO): Longer-term architectural threat that could eventually replace copper interconnects, though near-term adoption faces reliability hurdles. Nvidia and Coherent recently announced a silicon photonics partnership for CPO networking switches.

Valuation

Current Metrics at $141.60

What's Priced In?

At current levels, the market essentially prices in Credo becoming a $5+ billion revenue company by decade's end with best-in-class profitability. The forward PEG ratio of approximately 1.0-1.5x suggests reasonable valuation relative to growth—but this assumes sustained 30%+ annual earnings growth for multiple years.

Our DCF model suggests fair value around $67, implying significant overvaluation on traditional metrics. However, DCF models systematically undervalue hypergrowth companies with expanding TAMs and improving unit economics. The P/E of ~123x is expensive compared to both the semiconductor peer average of 63x and industry average of 36x.

Scenario Analysis

Bull Case ($250-300): Credo achieves $2-3 billion revenue by FY28, new product pillars (ALCs, Weaver) exceed expectations, 50%+ net margins. Requires continued AI infrastructure spending acceleration and successful execution across all five pillars.

Base Case ($180-220): Revenue reaches $1.5-2 billion by FY28, AEC market share defended, new pillars contribute incrementally. Growth moderates to 30-40% annually. Aligned with current analyst consensus targets.

Bear Case ($80-100): AI infrastructure spending decelerates, Marvell/Broadcom capture meaningful AEC share, new product timelines slip. Growth normalizes to 15-20%, multiple compresses to 25-30x.

Key Risks

Customer Concentration: Four hyperscalers each represent 10%+ of revenue. Any spending pause or in-sourcing decision could materially impact results.

Execution Risk on New Pillars: ZF Optics, ALCs, and Weaver are not expected to generate meaningful revenue until FY27-28. Delays could shift timelines and disappoint expectations.

Competitive Pressure: Marvell's entry with Amphenol partnerships introduces pricing and market share risks. AEC commoditization could compress margins.

AI Cycle Dependency: Any pullback from hyperscaler capex or scaling back of AI infrastructure plans would directly impact demand.

Rising Expenses: Non-GAAP operating expenses expected to rise ~50% YoY in FY26. Margin pressure could emerge if revenue growth doesn't keep pace.

Investment Thesis

Why Credo Could Be a Multi-Year Compounder

From a first-principles perspective, Credo exhibits several characteristics of a quality compounder:

High ROIIC Potential: The fabless model with proprietary SerDes IP enables high incremental returns on invested capital. Non-GAAP operating margins have expanded from single digits to 46%+ as revenues scaled, demonstrating significant operating leverage.

Structural Growth Tailwinds: AI data center investment projected at $5.2 trillion through 2030 according to McKinsey. Networking portion of hyperscaler capex rising from 5-10% historically to 15-20% by 2030. Credo is a "picks and shovels" play on this megatrend.

Expanding TAM: From $3 billion 18 months ago to $10+ billion today. New product pillars (ALCs potentially 2x AEC market, Weaver addressing memory bottleneck) could drive another TAM expansion.

Strong Balance Sheet: $814 million cash, minimal debt. Financial firepower for M&A and R&D investment without dilution.

Concerns for Long-Term Holders

Valuation vs. Durability: At 53x forward earnings, the stock prices in exceptional outcomes. The question is whether Credo's competitive moats are durable enough to sustain premium returns over a decade, or whether competitors will eventually commoditize AECs.

Growth Deceleration: Mathematical reality constrains triple-digit growth. A company approaching $1 billion in revenue cannot sustain 175% growth without becoming a $10+ billion business within three years. Analyst consensus projects growth moderating to 30-40% by FY27.

Our Plan

ACCUMULATE ON PULLBACKS

Credo Technology represents a high-quality business with dominant market positioning in a structurally growing market. The five growth pillars—particularly ALCs and Weaver—could provide sustained growth vectors well into the next decade if execution delivers.

However, at $141.60, the risk/reward is less compelling than it would be on pullbacks. The stock has retreated 33% from its December high of $214, which represents a better risk-adjusted entry point. For investors with time horizons of 5+ years focused on quality compounders, a starter position here with plans to add on weakness is reasonable.

Position Sizing Guidance

For a concentrated portfolio of quality compounders, Credo merits inclusion but with position size reflecting the risk-reward asymmetry:

Full Position: Assumes sustained 20%+ growth, margin maintenance, and continued technology leadership—achievable but requiring optimistic assumptions across multiple variables.

Starter Position: Allows participation in the AI infrastructure theme while awaiting more attractive entry points or further execution evidence. This is the recommended approach at current levels.

Entry Points to Watch

• $130-135: Attractive accumulation zone near 50-day moving average support

• $100-110: Compelling valuation if AI sentiment sours broadly

• $80-90: Generational buying opportunity if macro concerns trigger deep correction

Final Thoughts

As CEO Bill Brennan stated: "In summary, we now have five distinct high-growth connectivity pillars: AECs, IC solutions, including retimers and optical DSPs, zero-flap optics, ALCs, and OmniConnect gearbox solutions. Together, they'll give Credo a combined total market opportunity that we believe will exceed $10 billion in the coming years, more than triple where we stood just 18 months ago."

The market appears to agree with this optimism—the question is whether that agreement has pushed the price ahead of the opportunity. For patient investors focused on decade-long compounding, Credo represents exactly the type of structurally advantaged business worth owning. The only question is price discipline. The business quality is undeniable. The valuation requires conviction. Right now it sits on my watchlist, which you can access in real-time in our community.

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