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The Zacks Consensus Estimate for the bottom line in the to-be-reported quarter is pegged at 27 cents compared with 7 cents reported in the prior year quarter. The estimate has remained unchanged in the past 60 days. The consensus estimate for total revenues is pinned at $160 billion, implying a 163.2% year-over-year increase.
For the fiscal fourth quarter, CRDO expects revenues between $155 million and $165 million.
Credo beat the Zacks Consensus Estimate for earnings in three of the trailing four quarters, while matching in the remaining quarter, with an average earnings surprise of 29.7%. (Find the latest EPS estimates and surprises on Zacks Earnings Calendar.)
What Our Model Predicts for CRDO’s Q4
Our proven model does not conclusively predict an earnings beat for CRDO this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of an earnings beat. But that is not the case here. You can uncover the best stocks to buy or sell before they are reported with our Earnings ESP Filter.
Credo is likely to gain from hyperscalers scaling up production of their AI platforms. Amid exponential data growth and rapid AI proliferation, market demand for faster and energy-efficient connectivity solutions continues to increase. This bodes well for Credo. In the last earnings call, management had noted that it received “solidified” forecasts and is witnessing increasing design activity for its solutions with additional hyperscalers and other customers.
Momentum in Active Electrical Cables (AEC) product line as well as SerDes tech is likely to have driven the topline numbers in the to-be-reported quarter. The growth is driven by its increasing adoption in the data center market. The demand for AECs is increasing as ZeroFlap AECs offer more than 100 times improved reliability than laser-based optical solutions. This made AECs an increasingly attractive option for data center applications, contributing to the new expansion of AEC usage and further solidifying Credo Technology’s position in the market. Increasing customer interest in CRDO’s PCIe retimers and Ethernet retimers for scale-out networks in AI servers bodes well.
Another bright spot is Credo's Optical DSP business, which management highlighted as on track to meet fiscal 2025 targets. In April, CRDO launched the innovative Lark Optical DSP family, engineered to transform 800G optical transceivers. The Lark portfolio has two distinct optical DSP products. The Lark 800 is a high-performance, low-power DSP optimized for fully retimed 800G transceivers, designed to meet the stringent power and cooling requirements of hyperscale AI data centers. The Lark 850 is an ultra-low-power 800G Linear Receive Optics DSP, consuming under 10W, making it an ideal solution for AI-driven data environments where power efficiency is exceptional.
Image Source: Zacks Investment Research
Operating leverage from rapid top-line growth is likely to cushion margin performance. In the last reported quarter, non-GAAP gross margin reached 63.8%, exceeding the high end of guidance, while operating income surged to $42.4 million, up from $8.3 million in the prior quarter. For the current quarter, CRDO expects non-GAAP gross margin to be between 63% and 65%
Nonetheless, increasing market competition and macroeconomic uncertainties remain concerns. Credo competes with semiconductor giants like Broadcom Inc. (AVGO - Free Report) and Marvell Technology, Inc. (MRVL - Free Report) . R&D spend is likely to ramp up as CRDO focuses on product innovation. Increasing costs can become a problem if the revenue growth does not keep pace. Credo’s non-GAAP operating expenses in the fiscal third quarter surged 16% sequentially to $43.8 million, primarily due to higher headcount. It expects non-GAAP operating expenses to be between $50 million and $52 million in the to-be-reported quarter.
Overreliance on a few clients for revenue growth is an additional headwind. In the last reported quarter, 86% of revenue came from a single end customer. This intense customer concentration risk can impact revenues as the company becomes highly vulnerable to the loss of business from those clients.
CRDO Stock Gains
CRDO shares have gained 24.3% in the past three months, significantly outperforming its Electronics - Semiconductors industry, Zacks Computer and Technology sector and S&P 500 composite’s gains of 15.6%, 4.5% and 0.5%, respectively.
Price Performance
Image Source: Zacks Investment Research
The company has outperformed its peers, like Marvell and Cirrus Logic (CRUS - Free Report) , which have declined 24.8% and 1.3%, respectively. However, Broadcom’s stock has gained 30.9% in the same time frame.
CRDO Trades at a Premium
Credo Technology stock is also not so cheap, as its Value Score of F suggests a stretched valuation at this moment. In terms of the forward 12-month Price/Sales ratio, CRDO is trading at 15.57, higher than the Electronic-Semiconductors sector’s multiple of 7.84.
Image Source: Zacks Investment Research
In comparison, Broadcom trades at a forward 12-month P/S multiple of 16.53, while Cirrus Logic and Marvell Technology are trading at a multiple of 2.89 and 6.37, respectively.
Investment Thesis for CRDO Stock
While Credo is experiencing strong growth momentum driven by AI-driven demand, several risk factors temper its near-term upside. Risks like customer concentration, elevated expenses, and competitive pressures from larger players, such as Broadcom and Marvell, present meaningful execution risks.
CRDO’s stretched valuation — evidenced by a high forward P/S ratio of 15.57 and a Value Style Score of F — is another concern. Consequently, investors should wait for a better entry point. However, existing investors can hold the stock as its growth prospects remain intact.
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Is CRDO Stock Worth a Spot in Your Portfolio Ahead of Q4 Earnings?
Credo Technology Group Holding Ltd (CRDO - Free Report) will report its fourth-quarter fiscal 2025 results on June 2.
The Zacks Consensus Estimate for the bottom line in the to-be-reported quarter is pegged at 27 cents compared with 7 cents reported in the prior year quarter. The estimate has remained unchanged in the past 60 days. The consensus estimate for total revenues is pinned at $160 billion, implying a 163.2% year-over-year increase.
For the fiscal fourth quarter, CRDO expects revenues between $155 million and $165 million.
Credo beat the Zacks Consensus Estimate for earnings in three of the trailing four quarters, while matching in the remaining quarter, with an average earnings surprise of 29.7%. (Find the latest EPS estimates and surprises on Zacks Earnings Calendar.)
What Our Model Predicts for CRDO’s Q4
Our proven model does not conclusively predict an earnings beat for CRDO this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of an earnings beat. But that is not the case here. You can uncover the best stocks to buy or sell before they are reported with our Earnings ESP Filter.
CRDO has an Earnings ESP of 0.00% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.
Credo Technology Group Holding Ltd. Price and EPS Surprise
Credo Technology Group Holding Ltd. price-eps-surprise | Credo Technology Group Holding Ltd. Quote
Factors to Focus on Ahead of CRDO’s Q4 Earnings
Credo is likely to gain from hyperscalers scaling up production of their AI platforms. Amid exponential data growth and rapid AI proliferation, market demand for faster and energy-efficient connectivity solutions continues to increase. This bodes well for Credo. In the last earnings call, management had noted that it received “solidified” forecasts and is witnessing increasing design activity for its solutions with additional hyperscalers and other customers.
Momentum in Active Electrical Cables (AEC) product line as well as SerDes tech is likely to have driven the topline numbers in the to-be-reported quarter. The growth is driven by its increasing adoption in the data center market. The demand for AECs is increasing as ZeroFlap AECs offer more than 100 times improved reliability than laser-based optical solutions. This made AECs an increasingly attractive option for data center applications, contributing to the new expansion of AEC usage and further solidifying Credo Technology’s position in the market. Increasing customer interest in CRDO’s PCIe retimers and Ethernet retimers for scale-out networks in AI servers bodes well.
Another bright spot is Credo's Optical DSP business, which management highlighted as on track to meet fiscal 2025 targets. In April, CRDO launched the innovative Lark Optical DSP family, engineered to transform 800G optical transceivers. The Lark portfolio has two distinct optical DSP products. The Lark 800 is a high-performance, low-power DSP optimized for fully retimed 800G transceivers, designed to meet the stringent power and cooling requirements of hyperscale AI data centers. The Lark 850 is an ultra-low-power 800G Linear Receive Optics DSP, consuming under 10W, making it an ideal solution for AI-driven data environments where power efficiency is exceptional.
Image Source: Zacks Investment Research
Operating leverage from rapid top-line growth is likely to cushion margin performance. In the last reported quarter, non-GAAP gross margin reached 63.8%, exceeding the high end of guidance, while operating income surged to $42.4 million, up from $8.3 million in the prior quarter. For the current quarter, CRDO expects non-GAAP gross margin to be between 63% and 65%
Nonetheless, increasing market competition and macroeconomic uncertainties remain concerns. Credo competes with semiconductor giants like Broadcom Inc. (AVGO - Free Report) and Marvell Technology, Inc. (MRVL - Free Report) . R&D spend is likely to ramp up as CRDO focuses on product innovation. Increasing costs can become a problem if the revenue growth does not keep pace. Credo’s non-GAAP operating expenses in the fiscal third quarter surged 16% sequentially to $43.8 million, primarily due to higher headcount. It expects non-GAAP operating expenses to be between $50 million and $52 million in the to-be-reported quarter.
Overreliance on a few clients for revenue growth is an additional headwind. In the last reported quarter, 86% of revenue came from a single end customer. This intense customer concentration risk can impact revenues as the company becomes highly vulnerable to the loss of business from those clients.
CRDO Stock Gains
CRDO shares have gained 24.3% in the past three months, significantly outperforming its Electronics - Semiconductors industry, Zacks Computer and Technology sector and S&P 500 composite’s gains of 15.6%, 4.5% and 0.5%, respectively.
Price Performance
Image Source: Zacks Investment Research
The company has outperformed its peers, like Marvell and Cirrus Logic (CRUS - Free Report) , which have declined 24.8% and 1.3%, respectively. However, Broadcom’s stock has gained 30.9% in the same time frame.
CRDO Trades at a Premium
Credo Technology stock is also not so cheap, as its Value Score of F suggests a stretched valuation at this moment. In terms of the forward 12-month Price/Sales ratio, CRDO is trading at 15.57, higher than the Electronic-Semiconductors sector’s multiple of 7.84.
Image Source: Zacks Investment Research
In comparison, Broadcom trades at a forward 12-month P/S multiple of 16.53, while Cirrus Logic and Marvell Technology are trading at a multiple of 2.89 and 6.37, respectively.
Investment Thesis for CRDO Stock
While Credo is experiencing strong growth momentum driven by AI-driven demand, several risk factors temper its near-term upside. Risks like customer concentration, elevated expenses, and competitive pressures from larger players, such as Broadcom and Marvell, present meaningful execution risks.
CRDO’s stretched valuation — evidenced by a high forward P/S ratio of 15.57 and a Value Style Score of F — is another concern. Consequently, investors should wait for a better entry point. However, existing investors can hold the stock as its growth prospects remain intact.