Will Credo's Neocloud Expansion Broaden Its AEC Growth Runway?

Credo Technology Group Holding Ltd. CRDO continues to see a healthy growth runway for its Active Electrical Cables (AECs) business, supported by deeper penetration at hyperscalers, rising data rates and growing traction with Neocloud customers.

AECs are a system-level product for CRDO and its core growth engine. Credo believes its system-level approach, which combines silicon, firmware, manufacturing tests and qualification, remains a key differentiator.

The company now has deep relationships with five hyperscalers, alongside expanding engagement with Neocloud customers. Importantly, Credo continues to see higher AEC penetration within existing customers as deployments scale, while the shift toward 200-gig-per-lane 1.6T ports provides another growth opportunity.

Credo Technology Group Holding Ltd. Revenue (TTM)

Credo Technology Group Holding Ltd. revenue-ttm | Credo Technology Group Holding Ltd. Quote

The Neocloud opportunity could help diversify Credo’s customer base. Credo’s customer concentration, with its four largest customers accounting for 33%, 28%, 13% and 10% of first-quarter fiscal 2027 revenues, respectively. Management continues to expect three to four customers to contribute greater than 10% of revenues in the upcoming quarters.

Heavy reliance on a few hyperscalers can introduce volatility, particularly as customer mix can fluctuate from quarter to quarter.

Credo is actively working to reduce this reliance through a diversification strategy across hyperscalers, neo clouds and other customers. Neo cloud providers are emerging players in the AI infrastructure space. This set of cloud providers is heavily focused on building AI infrastructure to support a wide range of applications, from model development to inference AI and even Agentic AI workloads. This bodes well for CRDO’s AECs business.

Still, AEC growth rates are likely to moderate as the business scales. Management noted that AEC revenues more than doubled from fiscal 2024 to fiscal 2025 and more than tripled from fiscal 2025 to fiscal 2026. With optics ramping from a smaller base, that business is expected to grow faster.

However, Credo faces intense competition in the semiconductor industry from players such as Marvell Technology MRVL and Broadcom AVGO.

Mapping Competitive Terrain

Marvell Technology reported second-quarter fiscal 2027 data center revenues of $2.17 billion, up 46% year over year and 18% sequentially. Tailwinds across interconnect, switching and custom businesses remain the key growth drivers. Connectivity demand for AI infrastructure is driving demand for interconnect and switching products, particularly scale-out applications. Marvell Technology expects copper and optical interconnects to coexist for several years, even as larger scale-up deployments increasingly migrate toward optics.

Management raised its fiscal 2027 revenue outlook to roughly $12 billion, up from the prior view of approximately $11.5 billion. Data center revenues are now expected to grow about 60% this year, up from 50% expected earlier. For fiscal 2028, Marvell Technology expects revenues of approximately $18 billion, representing roughly 50% year-over-year growth, with data-center revenues projected to increase more than 60%.

Broadcom represents significant competitive pressure given its broad AI networking footprint. Third-quarter fiscal 2026 AI semiconductor revenues grew 221% year-over-year and up 54% sequentially to $16.7 billion. The company highlighted increasing adoption of its custom accelerators (XPUs) across its six XPU customers. XPU shipments grew more than 3.5 times year on year and represented 73% of AI revenues. The company expects fiscal 2026 AI revenues of about $58 billion, up 186% year over year and approximately $115 billion in fiscal 2027. Broadcom further sees AI semiconductor revenues doubling again to roughly $230 billion in fiscal 2028.

Alongside custom accelerators, networking is expected to remain a major growth engine, with management expecting AI networking revenues to grow at a pace similar to XPUs over the next few years.

CRDO Price Performance, Valuation and Estimates

Shares of CRDO are down 30.6% in the past month compared with the Electronics-Semiconductors industry’s decline of 8.1%.

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CRDO is trading at a forward 12-month price/earnings ratio of 24.03X, higher than the Electronics-Semiconductors sector’s multiple of 13.31X.

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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 #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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