Credo Technology soars after earnings beat: here's why analysts think its a buy

Credo Technology reported a stronger-than-expected second quarter, swinging to a profit as revenue more than tripled on the back of accelerating investment in artificial intelligence training and inference systems.

The provider of high-speed connectivity solutions for data centers said demand for scale, density, and power efficiency in next-generation AI systems continues to rise rapidly.

Shares surged nearly 17% in premarket trading on Tuesday.

The stock had already climbed 15% to $197.10 in after-hours trading on Monday, extending gains that have more than doubled its value this year.

Over the past twelve months, Credo shares have risen more than 250%, with more than 170% of that increase coming in the last six months.

Chief Executive Bill Brennan told analysts that AI clusters are expanding at an unprecedented rate.

"AI clusters are no longer measured in tens of thousands of GPUs. They're now measured in hundreds of thousands and soon millions," Chief Executive Bill Brennan said during a call with analysts.

The shift drove strong sales of Credo’s active electrical cables, which the company says outperform traditional optical modules on both energy consumption and reliability.

The product line has become a key component of the company’s positioning in AI-centric data center architecture.

Credo’s revenue rose to $268 million for the quarter, well above analyst estimates of $235 million.

The company posted a profit of $82.6 million, or 44 cents a share, reversing a loss of $4.2 million a year earlier. Adjusted earnings were 67 cents a share, ahead of expectations of 49 cents.

Strong guidance reinforces investor confidence

Credo projected third-quarter revenue of $335 million to $345 million, sharply above analyst forecasts of $247.6 million.

The outlook strengthened investor confidence in the company’s ability to capture a growing share of AI-related infrastructure spending, even as broader semiconductor and networking markets have shown pockets of volatility.

Analysts said the upbeat guidance underscores the momentum behind Credo’s Active Electrical Cable business, which is being adopted across multiple hyperscalers.

The company expects this momentum to continue through fiscal years 2026 and 2027.

Analysts upgrade stock on accelerating AI tailwinds

The strong results and guidance prompted a series of upward revisions from major brokerages.

Fifteen out of 16 brokerages now assign Credo a “buy” or equivalent rating, with just one advising “hold.”

Their median price target stands at $220, according to LSEG data.

JPMorgan, which raised its price target to $230 from $165, highlighted accelerating near-term ramps in Active Electrical Cable (AEC) deployments at major hyperscalers and the potential for new products to support multi-year growth.

Needham raised its price target to $220 from $190 while maintaining a Buy rating, citing stronger-than-expected third-quarter guidance and broad-based AEC strength.

The firm increased its fiscal 2027 revenue estimate by $350 million to $1.60 billion.

Stifel lifted its target to $225 from $160, also keeping a Buy rating.

It said Credo remains well placed to benefit from the early stages of large-scale AI infrastructure rollouts.

Despite a high price-to-earnings ratio, Stifel noted that Credo’s PEG ratio suggests the stock may still be undervalued relative to its growth outlook.

BofA Securities raised its target to $240 from $165 and named Credo one of its top AI-leveraged picks alongside Nvidia, Broadcom, and AMD.

The firm pointed to accelerating adoption of Credo’s AEC products at major cloud providers and emerging growth opportunities in new product categories, including zero-flap optics, active LED cables, and omni-connect gearboxes.

BofA said these segments could collectively expand the company’s total addressable market to around $10 billion by the end of the decade.

Analysts broadly agreed that as AI clusters multiply and power demands intensify, Credo remains positioned to benefit from a sustained upgrade cycle across the global data center ecosystem.