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CRDO vs. AVGO: Which Data Center Connectivity Stock Is the Smart Pick?
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Key Takeaways
CRDO's connectivity solutions and fast-growing AEC, optical and PCIe lines fuel its AI-driven expansion.
Hyperlume's microLED technology and new product launches broaden CRDO's reach.
AVGO posts AI semiconductor gains and VMware momentum but faces margin pressure and slower non-AI recovery.
Semiconductor companies are at the core of the AI revolution as they offer solutions that enable improved processing power and efficiency to manage AI workloads. Amid rapid AI proliferation, investors are increasingly focusing on companies that offer the infrastructure behind it.
Both Credo Technology Group Holding Ltd ((CRDO - Free Report) ) and Broadcom ((AVGO - Free Report) ) are key players in this domain, but operate from very different positions of scale and maturity.
Both companies bring to the table unique strengths, which makes this an intriguing comparison for investors.
So, now the question arises: Which stock makes a better investment pick at present? Let us dive into the fundamentals, valuations, growth outlook and risks for each company.
The Case for CRDO
Credo’s system-level approach provides it with a strong competitive moat. It owns the entire stack of SerDes IP, Retimer ICs, system-level design, qualification and production. This integrated approach allows faster innovation cycles and strong cost efficiency.
CRDO’s growth is fueled by the strength of its AEC business, complemented by increasing traction in the optical business and PCIe and Ethernet retimer businesses. AECs, which serve as power-efficient alternatives, have seen explosive adoption. These cables offer up to 1,000 times more reliability with 50% lower power consumption than optical solutions, added CRDO. In the last reported quarter, the AEC product line increased by healthy double digits sequentially. The adoption from intra-rack to rack-to-rack deployments is expected to boost further revenues from this product line.
Its optical DSP segment maintained strong momentum, positioning the company to achieve a doubling of optical revenues again in the current fiscal year. CRDO added that recently launched PCIe retimer solutions were gaining “significant traction” and expects PCIe design wins in 2025 with production revenues in 2026. The PCIe-based solutions for AI scale-up networks expand CRDO’s addressable market.
Frequent product launches (like Bluebird DSP, Weaver memory fanout gearbox, ZeroFlap optical transceiver) across segments are expected to drive top-line growth. CRDO is also focused on buyouts to boost organic growth. The recent acquisition of Hyperlume is expected to boost CRDO’s next-generation connectivity solutions as AI, cloud and hyperscale data centers place unprecedented demands on data infrastructure deployments. Hyperlume develops miniature light-emitting diode (microLED) technology-based optical interconnects for chip-to-chip communication.
Credo Technology Group Holding Ltd. Price, Consensus and EPS Surprise
However, the fierce competitive landscape and global macroeconomic uncertainties amid tariff troubles remain overhangs. Credo operates at a much lower scale, exposing it to customer concentration risk. In the fiscal first quarter, three hyperscalers each contributed more than 10% of revenues and CRDO noted that there was a material revenue contribution from a fourth hyperscaler. Though it expects revenues from the additional hyperscaler to increase throughout fiscal 2026, with just three to four hyperscaler customers, Credo’s revenue base remains highly concentrated.
Management expects these three to four hyperscalers to surpass 10% of revenues in the upcoming quarters and fiscal year. Two additional hyperscalers are expected to commence ramping in fiscal 2026. Nonetheless, any spending slowdown or in-house component development by these clients could materially impact top-line performance.
Moreover, CRDO’s bullish narrative hinges on AI investment. While these segments are currently experiencing high growth, they are also cyclically dependent on AI capex spending, which could decelerate after initial buildouts.
The Case for AVGO
AI semiconductor revenue growth and VMware’s continued traction are the two long-term tailwinds for AVGO. Semiconductor revenues came in at $9.2 billion in the third quarter of fiscal 2025, increasing 26% year over year. Within this, AI semiconductor revenues hit $5.2 billion, a 63% year-over-year increase. XPUs contributed 65% to the AI semiconductor revenues.
AVGO sees massive opportunities in the AI space as its three hyperscaler customers have started to develop their own XPUs. These hyperscalers are significantly ramping up investment in their next-generation frontier models, which do require high-performance accelerators and AI data centers with larger clusters. Management highlighted that the company has secured more than $10 billion of orders for AI racks based on its XPUs. As a result, it now expects AI semiconductor revenues to increase 66% year over year to $6.2 billion for the fourth quarter of fiscal 2025.
AVGO had a consolidated backlog of $110 billion in the fiscal third quarter, providing strong revenue visibility. Broadcom is also well-placed to gain from the traction seen in Tomahawk 5 and 6 switches and Jericho 4 Ethernet fabric router, which are at the center of hyperscale AI cluster deployments.
The infrastructure software segment, with revenues of $6.8 billion (up 17%) and a 93% gross margin, is another strong catalyst. Management noted that its VMware Cloud Foundation 9.0, a fully integrated cloud platform, is positioned as a real public-cloud alternative. VMware Cloud Foundation 9.0 can run any application workload, including AI workloads, on virtual machines and on modern containers. For the fiscal fourth quarter, AVGO expects Infrastructure software revenues of $6.7 billion, up 15% year on year.
Given strong AI business and VMware, Broadcom expects fiscal fourth-quarter 2025 revenues of $17.4 billion, up 24% year over year. However, gross margin is expected to contract nearly 70 basis points sequentially, owing to a higher mix of XPUs within AI revenues and also wireless revenues. Management reiterated that consolidated gross margins for fiscal 2025 will continue to be influenced by the revenue mix between infrastructure software and semiconductors.
Slow recovery in non-AI semiconductor revenues is another concern. For the fiscal fourth quarter, AVGO projects non-AI semiconductor revenues to grow low double digits sequentially to $4.6 billion. While broadband, server storage and wireless are expected to improve, enterprise networking will be down on a sequential basis. Heavy expenses, leverage and hyperscaler dependence are major concerns.
Price Performance and Valuation for CRDO & AVGO
Over the past three months, CRDO and AVGO have registered gains of 22.6% and 12%, respectively.
Image Source: Zacks Investment Research
In terms of the forward 12-month price/sales ratio, CRDO is trading at 22.53X, higher than AVGO’s 18.82X.
Image Source: Zacks Investment Research
How Do Zacks Estimates Compare for CRDO & AVGO?
Analysts have revised earnings estimates by 2% for CRDO for the current fiscal in the past 60 days.
Image Source: Zacks Investment Research
There is a marginal upward revision for AVGO’s bottom line.
Image Source: Zacks Investment Research
CRDO or AVGO: Which Is a Better Pick?
Both CRDO and AVGO, carrying a Zacks Rank #3 (Hold), are well-positioned to gain from the rapidly growing AI-driven data center market.
Credo offers more direct exposure to the fastest-growing segment of AI infrastructure like next-generation connectivity and interconnect solutions. While AVGO is a diversified giant with solid AI revenue drivers, its scale naturally limits upside relative to Credo’s focused growth runway. CRDO seems a better pick at the moment.
Image: Bigstock
CRDO vs. AVGO: Which Data Center Connectivity Stock Is the Smart Pick?
Key Takeaways
Semiconductor companies are at the core of the AI revolution as they offer solutions that enable improved processing power and efficiency to manage AI workloads. Amid rapid AI proliferation, investors are increasingly focusing on companies that offer the infrastructure behind it.
Both Credo Technology Group Holding Ltd ((CRDO - Free Report) ) and Broadcom ((AVGO - Free Report) ) are key players in this domain, but operate from very different positions of scale and maturity.
Both companies bring to the table unique strengths, which makes this an intriguing comparison for investors.
So, now the question arises: Which stock makes a better investment pick at present? Let us dive into the fundamentals, valuations, growth outlook and risks for each company.
The Case for CRDO
Credo’s system-level approach provides it with a strong competitive moat. It owns the entire stack of SerDes IP, Retimer ICs, system-level design, qualification and production. This integrated approach allows faster innovation cycles and strong cost efficiency.
CRDO’s growth is fueled by the strength of its AEC business, complemented by increasing traction in the optical business and PCIe and Ethernet retimer businesses. AECs, which serve as power-efficient alternatives, have seen explosive adoption. These cables offer up to 1,000 times more reliability with 50% lower power consumption than optical solutions, added CRDO. In the last reported quarter, the AEC product line increased by healthy double digits sequentially. The adoption from intra-rack to rack-to-rack deployments is expected to boost further revenues from this product line.
Its optical DSP segment maintained strong momentum, positioning the company to achieve a doubling of optical revenues again in the current fiscal year. CRDO added that recently launched PCIe retimer solutions were gaining “significant traction” and expects PCIe design wins in 2025 with production revenues in 2026. The PCIe-based solutions for AI scale-up networks expand CRDO’s addressable market.
Frequent product launches (like Bluebird DSP, Weaver memory fanout gearbox, ZeroFlap optical transceiver) across segments are expected to drive top-line growth. CRDO is also focused on buyouts to boost organic growth. The recent acquisition of Hyperlume is expected to boost CRDO’s next-generation connectivity solutions as AI, cloud and hyperscale data centers place unprecedented demands on data infrastructure deployments. Hyperlume develops miniature light-emitting diode (microLED) technology-based optical interconnects for chip-to-chip communication.
Credo Technology Group Holding Ltd. Price, Consensus and EPS Surprise
Credo Technology Group Holding Ltd. price-consensus-eps-surprise-chart | Credo Technology Group Holding Ltd. Quote
However, the fierce competitive landscape and global macroeconomic uncertainties amid tariff troubles remain overhangs. Credo operates at a much lower scale, exposing it to customer concentration risk. In the fiscal first quarter, three hyperscalers each contributed more than 10% of revenues and CRDO noted that there was a material revenue contribution from a fourth hyperscaler. Though it expects revenues from the additional hyperscaler to increase throughout fiscal 2026, with just three to four hyperscaler customers, Credo’s revenue base remains highly concentrated.
Management expects these three to four hyperscalers to surpass 10% of revenues in the upcoming quarters and fiscal year. Two additional hyperscalers are expected to commence ramping in fiscal 2026. Nonetheless, any spending slowdown or in-house component development by these clients could materially impact top-line performance.
Moreover, CRDO’s bullish narrative hinges on AI investment. While these segments are currently experiencing high growth, they are also cyclically dependent on AI capex spending, which could decelerate after initial buildouts.
The Case for AVGO
AI semiconductor revenue growth and VMware’s continued traction are the two long-term tailwinds for AVGO. Semiconductor revenues came in at $9.2 billion in the third quarter of fiscal 2025, increasing 26% year over year. Within this, AI semiconductor revenues hit $5.2 billion, a 63% year-over-year increase. XPUs contributed 65% to the AI semiconductor revenues.
AVGO sees massive opportunities in the AI space as its three hyperscaler customers have started to develop their own XPUs. These hyperscalers are significantly ramping up investment in their next-generation frontier models, which do require high-performance accelerators and AI data centers with larger clusters. Management highlighted that the company has secured more than $10 billion of orders for AI racks based on its XPUs. As a result, it now expects AI semiconductor revenues to increase 66% year over year to $6.2 billion for the fourth quarter of fiscal 2025.
AVGO had a consolidated backlog of $110 billion in the fiscal third quarter, providing strong revenue visibility. Broadcom is also well-placed to gain from the traction seen in Tomahawk 5 and 6 switches and Jericho 4 Ethernet fabric router, which are at the center of hyperscale AI cluster deployments.
Broadcom Inc. Price, Consensus and EPS Surprise
Broadcom Inc. price-consensus-eps-surprise-chart | Broadcom Inc. Quote
The infrastructure software segment, with revenues of $6.8 billion (up 17%) and a 93% gross margin, is another strong catalyst. Management noted that its VMware Cloud Foundation 9.0, a fully integrated cloud platform, is positioned as a real public-cloud alternative. VMware Cloud Foundation 9.0 can run any application workload, including AI workloads, on virtual machines and on modern containers. For the fiscal fourth quarter, AVGO expects Infrastructure software revenues of $6.7 billion, up 15% year on year.
Given strong AI business and VMware, Broadcom expects fiscal fourth-quarter 2025 revenues of $17.4 billion, up 24% year over year. However, gross margin is expected to contract nearly 70 basis points sequentially, owing to a higher mix of XPUs within AI revenues and also wireless revenues. Management reiterated that consolidated gross margins for fiscal 2025 will continue to be influenced by the revenue mix between infrastructure software and semiconductors.
Slow recovery in non-AI semiconductor revenues is another concern. For the fiscal fourth quarter, AVGO projects non-AI semiconductor revenues to grow low double digits sequentially to $4.6 billion. While broadband, server storage and wireless are expected to improve, enterprise networking will be down on a sequential basis. Heavy expenses, leverage and hyperscaler dependence are major concerns.
Price Performance and Valuation for CRDO & AVGO
Over the past three months, CRDO and AVGO have registered gains of 22.6% and 12%, respectively.
Image Source: Zacks Investment Research
In terms of the forward 12-month price/sales ratio, CRDO is trading at 22.53X, higher than AVGO’s 18.82X.
Image Source: Zacks Investment Research
How Do Zacks Estimates Compare for CRDO & AVGO?
Analysts have revised earnings estimates by 2% for CRDO for the current fiscal in the past 60 days.
Image Source: Zacks Investment Research
There is a marginal upward revision for AVGO’s bottom line.
Image Source: Zacks Investment Research
CRDO or AVGO: Which Is a Better Pick?
Both CRDO and AVGO, carrying a Zacks Rank #3 (Hold), are well-positioned to gain from the rapidly growing AI-driven data center market.
Credo offers more direct exposure to the fastest-growing segment of AI infrastructure like next-generation connectivity and interconnect solutions. While AVGO is a diversified giant with solid AI revenue drivers, its scale naturally limits upside relative to Credo’s focused growth runway. CRDO seems a better pick at the moment.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.