AI, Cloud, And Edge Trends Will Fuel Next-Gen Connectivity

Key Takeaways

• Deep integration with future high-speed connectivity standards and AI architectures could make Credo indispensable, driving outsized revenue expansion and defensible market leadership.
  
• Accelerating adoption by hyperscalers and breakthrough optical solutions position Credo for sustained margin growth and reduced customer concentration risk.
  
• Heavy dependence on a few customers and external suppliers creates significant risks from customer loss, supply chain disruptions, and increased competitive and geopolitical pressures.

Catalysts

Provides various high-speed connectivity solutions for optical and electrical Ethernet, and PCIe applications in the United States, Taiwan, Mainland China, Hong Kong, and internationally.

• While analyst consensus foresees PCIe products expanding Credo's TAM, deeper alignment with future standards (UALink, SUE, NVLink Fusion) could allow Credo to cement itself as the de facto supplier for AI-driven scale-up architectures, enabling revenue growth well beyond current PCIe market forecasts as every new protocol converges on their SerDes and system-level IP.
  
• Analysts broadly agree the AEC segment will benefit from new hyperscaler engagements and customer diversification, but the speed and magnitude of adoption could be underestimated-with the ramp of two additional hyperscalers in fiscal 2026, AEC revenue could outgrow peer projections, materially accelerating top-line growth and reducing customer concentration risk, thus enhancing both revenue predictability and margins.
  
• High-speed optical DSP solutions, which are now achieving record-breaking power efficiency and performance at 100G and 200G lane rates, are set to capture increasing share as cloud and AI data center operators push for ever-higher bandwidth and lower energy use; this positions Credo for exponential optical revenue expansion over the next three to five years, materially lifting margins due to higher-value products.
  
• Credo's holistic, system-level integration model-including its PILOT software and vertically integrated design-will drive unmatched speed of customer deployment, design-win velocity, and customer stickiness, translating directly into gross margin expansion and operating leverage as competitors struggle to match end-to-end performance and reliability.
  
• The proliferation of AI and machine learning workloads, alongside rapid global cloud buildouts and edge compute expansion, are catalyzing a long-term, secular surge in demand for differentiated, power-efficient connectivity-a space in which Credo's accelerating innovation and direct customer relationships position it to capture supernormal revenue growth and sustained high EPS compounding over the decade.

Credo Technology Group Holding Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on Credo Technology Group Holding compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming Credo Technology Group Holding's revenue will grow by 36.5% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from 11.9% today to 30.7% in 3 years time.
• The bullish analysts expect earnings to reach $341.3 million (and earnings per share of $1.9) by about August 2028, up from $52.2 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 103.5x on those 2028 earnings, down from 349.6x today. This future PE is greater than the current PE for the US Semiconductor industry at 28.5x.
• Analysts expect the number of shares outstanding to grow by 3.36% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 10.1%, as per the Simply Wall St company report.

Credo Technology Group Holding Future Earnings Per Share Growth

Risks

• The high concentration of revenue among a small number of hyperscaler customers, with the largest customer representing 61% of revenue in Q4 and only three customers exceeding 10% each, exposes Credo to significant customer concentration risk, meaning that the loss of a top account or changes in purchasing behavior could cause sharp revenue volatility and negatively affect future earnings.
  
• The company's heavy reliance on outsourced manufacturing, particularly with critical suppliers such as TSMC for silicon and cable assembly partners in China, heightens exposure to supply disruptions, geopolitical instability, and potential increases in fabrication costs, all of which could compress gross margins and jeopardize stable delivery of products.
  
• Growing involvement of hyperscale datacenter operators in designing their own custom silicon chips for networking and AI infrastructure poses a risk to demand for merchant silicon and connectivity solutions like those offered by Credo, which could undercut future revenue streams and limit long-term profitability if vertical integration accelerates.
  
• The rapid pace of innovation in the semiconductor and connectivity industries increases the likelihood of technology obsolescence, requiring Credo to maintain high R&D investments in areas like 3-nanometer and 5-nanometer process nodes; should product cycles shorten or if competitors outpace Credo in technological advances, R&D expenses could grow faster than revenue and erode net income.
  
• Persistent global trade tensions and the trend toward deglobalization may disrupt supply chains, particularly as key suppliers are located in China, risking increased regulatory compliance costs, tariffs, and market restrictions, which could drive up costs and impact both revenue growth and net margins.

Valuation

• The assumed bullish price target for Credo Technology Group Holding is $140.0, which is the highest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Credo Technology Group Holding's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $140.0, and the most bearish reporting a price target of just $72.0.
  
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be $1.1 billion, earnings will come to $341.3 million, and it would be trading on a PE ratio of 103.5x, assuming you use a discount rate of 10.1%.
  
• Given the current share price of $106.3, the bullish analyst price target of $140.0 is 24.1% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.