Credo Technology's Scale-Up Push: Can it Drive Long-Term Growth?

Credo Technology CRDO is expanding its presence in the AI connectivity space, with scale-up networks emerging as another potential growth opportunity. While fiscal 2027 is expected to mark the beginning of scale-up revenues, management sees fiscal 2028 as a more substantial opportunity.

Credo further added that it expects the scale-up opportunity to evolve across different architectures, with hyperscalers and Neo Clouds pursuing individual strategies to address bandwidth requirements. It is taking a customer-by-customer approach as operators pursue different strategies.

The company's expanding product portfolio could support this opportunity. Credo remains on track for PCIe Gen6 AEC solutions and is witnessing strengthening customer engagement and design activity. Retimer momentum is also improving across 100G and 200G per lane, alongside customer traction for PCIe Gen6 retimers.

Credo Technology Group Holding Ltd. Revenue (Quarterly YoY Growth)

Credo Technology Group Holding Ltd. revenue-quarterly-yoy-growth | Credo Technology Group Holding Ltd. Quote

Blue Heron supports Ethernet, UALink and ESUN for emerging scale-out and scale-up networks. Management expects initial CPO and NPO revenues from DustPhotonics in fiscal 2028. It also expects production ramps for active LED cables (ALCs) and OmniConnect in fiscal 2028. OmniConnect gearboxes are designed to optimize XPU connectivity. The first OmniConnect product, called Weaver, allows up to a tenfold improvement in memory I/O density.

However, the scale-up opportunity remains at an early stage. Customer architectures and deployment strategies will determine how quickly revenues ramp. For now, fiscal 2027 appears to be a foundation year, while fiscal 2028 could provide a clearer test of whether Credo can turn its expanding scale-up portfolio into a meaningful revenue contributor.

Credo also needs to watch out for serious competition from bigwigs like Broadcom AVGO and Marvell Technology MRVL, as well as upcoming players like Astera Labs.

Taking a Look at Competitors

Marvell is also accelerating investments in the emerging scale-up networking market. On the last earnings call, management noted that it expects a “massive expansion” of scale-up networks as AI domains grow, which will require high-radix, low-latency switches and high-bandwidth optical interconnects.

Marvell expects its scale-up optics business to ramp significantly in fiscal 2028, with revenues forecast to more than double its prior outlook of roughly $150 million. The company added that it is well-placed to support scale-up protocols with its in-house-developed UAL and ESUN switches and support for NVLink through its partnership with NVIDIA. It also has several Tier-1 customer engagements that management believes each represent multibillion-dollar lifetime revenue opportunities.

Broadcom’s Networking business accounted for nearly 40% of its AI revenues in the fiscal second quarter. The company is enabling direct-attached copper using its 200G and 400G SerDes, alongside co-packaged copper with Ethernet and PCIe switches for scale-up networks.

Management expects networking to typically represent closer to 30% of AI revenues as its XPU business expands. Broadcom is building custom silicon platforms and enabling compute deployments for leading hyperscalers such as Meta, as well as AI companies like Anthropic and OpenAI. AI semiconductor revenues are expected to reach $16 billion in the third quarter of fiscal 2026, up more than 200% year over year.

CRDO Price Performance, Valuation and Estimates

Shares of CRDO gained 16% in the past month compared with the Electronics-Semiconductors industry’s growth of 1.1%.

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In terms of the forward 12-month price/sales ratio, CRDO is trading at 17.09, higher than the Electronic-Semiconductors sector’s multiple of 5.12.

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The Zacks Consensus Estimate for CRDO earnings for fiscal 2027 has seen a marginal upward revision over the past 60 days.

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CRDO currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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