Credo Technology Group CRDO shares are currently overvalued, as suggested by its Value Score of F. 

In terms of the forward 12-month price/sales (P/S), CRDO is trading at 24.76X, higher than its median of 14.27X and the Zacks Computer and Technology sector’s 6.48X.

Price/Sales Ratio (F12M)

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In the year-to-date period, CRDO shares have returned 18.9%, outperforming the broader sector’s return of 1.8% and the Zacks Electronics – Semiconductors industry’s appreciation of 2%.

Credo has also outperformed its broader sector peers like Synopsys SNPS, Marvell Technology MRVL and Broadcom AVGO over the same time frame. 

While SNPS and MRVL shares have returned 9.8% and 5.2%, respectively, AVGO has dropped 0.5% year to date.

CRDO shares have been benefiting from an exponential rise in demand for bandwidth driven by the accelerating deployment of innovative AI infrastructure and applications.

Year to Date Performance

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Credo shares are also currently trading above the 50-day and 200-day moving averages, indicating a bullish trend.

CRDO Trades Above 50-Day & 200-Day SMAs

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With an impressive share price performance, but at such a high valuation, how should investors approach CRDO stock? Let us dig deeper to find out.

A Robust Portfolio Aids CRDO’s Prospects

Credo’s innovative portfolio caters to the rising demand for high-density interconnectivity in AI and ML infrastructure. Its Ethernet solutions enable multiple devices to handle the growing sizes of AI and ML models with high speed and low latency. 

CRDO’s Ethernet offerings include active electrical cables (AECs), optical Digital Signal Processors (DSPs), line card retimers, SerDes chiplets and SerDes IP licenses, supporting port speeds from 100 gigabits per second (GBPS) to 1.6 terabits per second (TBPS).

Credo’s AECs ensure signal integrity and optimize power efficiency, delivering exceptional reliability as data speeds continue to rise. It also offers advantages over laser-based optics, including lower power consumption, reduced costs and greater flexibility. Credo’s 800-gig ZeroFlaps AECs, designed for AI back-end networks, support cable lengths of up to 7 meters.

CRDO’s DSP solutions are seeing strong demand for 50-gig and 100-gig per lane solutions, including active optical cables and transceivers, supporting speeds from 100-gig to 800-gig. In calendar year 2025, Credo expects to deliver industry-leading full DSP solutions operating at approximately 10 watts alongside LRO solutions at half that power.

Credo’s line card retimers are experiencing high demand for 400-gig and 800-gig applications. These retimers are being widely adopted for scaling AI networks and 100-gig per lane switching applications. 

Credo’s Outlook Remains Positive

Credo expects third-quarter fiscal 2025 revenues between $115 million and $125 million, which indicates growth of 67% sequentially at the mid-point.

CRDO expects double-digit sequential revenue growth from third-quarter fiscal 2025 to fourth-quarter fiscal 2025. For fiscal 2025, revenues are expected to grow more than 100%.

Simultaneously, Credo expects operating expenses to grow at less than half the rate of revenues, thereby driving margin expansion.

Over the long term, Credo expects non-GAAP gross margin between 63% and 65% or non-GAAP operating margin of 30-35% range.

CRDO’s Earnings Estimates Remain Steady

The Zacks Consensus Estimate for Credo’s third-quarter fiscal 2025 revenues is pegged at $120 million, indicating year-over-year growth of 126.16%.

The consensus mark for fiscal third-quarter earnings is currently pegged at 18 cents per share, unchanged over the past 60 days, and indicating a growth of 350% on a year-over-year basis. 

The Zacks Consensus Estimate for Credo’s fiscal 2025 revenues is pegged at $386.95 million, indicating year-over-year growth of 100.52%.

The consensus mark for fiscal 2025 earnings is currently pegged at 50 cents per share, unchanged over the past 60 days, and indicating growth of 455.56% on a year-over-year basis.

Credo beat the Zacks Consensus Estimate in earnings in three of the trailing four quarters and was in line with the estimate in one quarter, the average surprise being 28.33%.

Find the latest EPS estimates and surprises on Zacks Earnings Calendar.

Headwinds Hindering Credo’s Growth Momentum

Despite Credo’s strong performance and innovative solutions, several challenges pose headwinds to its prospects. The rapid evolution of AI cluster architectures is increasing the pressure on CRDO to address network disruptions, such as link lapses, which can lead to costly downtime and productivity loss. 

Credo’s transition toward PCIe Gen 6 is also presenting competitive and developmental challenges as customers demand higher performance and robust support. These factors, along with increasing market competition and macroeconomic uncertainties, may impact CRDO’s growth trajectory.

Conclusion

Credo is benefiting from an innovative portfolio and expanding AI-driven market opportunities. However, competitive pressures and macroeconomic uncertainties pose risks.

Given the company’s modest growth prospects, we believe that its valuation is not justified, making the stock a risky bet for investors.

Credo’s Growth Score of C makes it unattractive for growth-oriented investors.

CRDO currently has a Zacks Rank #3 (Hold), suggesting that it may be wise for investors to wait for a more favorable entry point in the stock. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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Marvell Technology, Inc. (MRVL) : Free Stock Analysis Report

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