Wall Street delivers a surprising verdict on Credo stock | Official Website of Louis Velazquez, entrepreneur, finance guy and tech innovator

Wall Street keeps getting more and more bullish on Credo Technology (CRDO).

But investors aren’t.

That divergence is becoming one of the more interesting stories in the artificial intelligence infrastructure business.

The connectivity chip manufacturer just reported another quarter of triple-digit growth, beat Wall Street projections, and said fiscal 2027 revenue might jump more than 80%.

Analysts scrambled to raise their price targets in response.

Needham lifted its target to $275 from $220. JPMorgan boosted its target to $250. Bank of America raised its target to $252. Even Rosenblatt, one of the more cautious firms covering the stock, increased its target to $215.

Thus, despite strong results and constructive commentary from analysts, shares of Credo plummeted post earnings.

The move underscored a mounting investor concern that expectations may be rising nearly as rapidly as the company’s revenue.

It’s pretty clear that Credo is benefiting from the AI explosion.

The question, however, is whether the firm can grow fast enough to warrant one of the hottest values in the semiconductor sector.

Credo’s AI opportunity is getting much bigger

Credo’s bull case begins with one number.

Management now forecasts revenue growth of more than 80% in fiscal 2027, extending a spectacular run that has already made Credo one of the top fastest-growing semiconductor firms related to AI infrastructure.

The company reported fiscal fourth-quarter revenue of $437 million, up 157% from a year earlier, while adjusted earnings of $1.16 per share topped expectations.

Needham analyst Quinn Bolton said the company’s optical business is becoming increasingly important.

Credo now expects optical products, including ZF optics, silicon photonic PICs, and optical DSPs, to generate more than $600 million of fiscal 2027 revenue, Bolton said.

Also, Credo just bought DustPhotonics, expanding its optical portfolio and strengthening its position in silicon photonics, which many analysts see as key to next-generation AI networking.

Timing is everything.

The large hyperscale customers are starting to move to 1.6-terabit architectures from 800G networking and are asking for the fastest and most sophisticated connectivity options. Analysts think the transition could open up a fresh growth runway for Credo over a number of years.

More AI:

Wall Street loves the story but has one problem: Not all the analysts are high on it.

Rosenblatt upped its price target but kept a neutral rating. The company said Credo’s optical business is developing rapidly, but the company’s forecast of $600 million in optical revenue is a modest piece of a datacom optical industry that might approach $25 billion.

At the heart of the value argument lies a concern about how much of the company’s potential performance is already priced into the stock.

Analysts are generally favorable. The average analyst target has risen to around $245, with most firms maintaining a buy rating. Despite the recent turbulence, consensus sentiment remains overwhelmingly optimistic.

Credo stock gets a bullish Wall Street call after an AI surge.

Cheng Xin / Getty Images

Credo stock enters its most important phase

The next chapter for Credo stock may not be about copper cables, but optics.

Needham’s revised $275 objective implies the company will be able to grow beyond its traditional active electrical cable business and become a key supplier of optical networking technologies for AI clusters.

This is an ambitious plan.

Management has laid out plans that eventually include co-packaged optics and near-packaged optics solutions, technologies aimed at improving efficiency as AI systems get bigger and more power-hungry.

Analysts believe that if it executes, Credo might dramatically increase its earnings power over the next several years.

If growth slows even a little, the case for premium multiples for future prospects might be less compelling.

Key developments driving Credo stock

Needham raised its target price to $275.
JPMorgan lifted its target to $250.
Bank of America raised its target to $252.
Fiscal fourth-quarter revenue surged 157% year over year.
Management forecast more than 80% revenue growth in fiscal 2027.
Optical revenue is expected to exceed $600 million.
DustPhotonics acquisition expands Credo’s silicon photonics portfolio.
AI networking upgrades from 800G to 1.6T create a new growth opportunity.

For now, Wall Street is obviously wagering that Credo will continue to be one of the greatest winners from the AI infrastructure buildout.

The concern investors struggle with is whether the stock can continue to beat forecasts as easily as it has beaten the competition.