Revenue is expected to increase by another 80%! Data center interconnect chip supplier Credo (CRDO.US) receives collective buy recommendation from institutions, with a target price of up to $300.

Benefiting from the continuous rise in the construction of artificial intelligence infrastructure and strong growth in demand for high-speed interconnect products, data center interconnect chip supplier Credo Technology (CRDO.US) reported results that far exceeded market expectations. The company's revenue in the fourth quarter of fiscal year 2026 soared more than 150% year-on-year, while management expects full-year revenue for fiscal year 2027 to increase by about 80%. The company's stock price rose by about 7% in pre-market trading on Tuesday, but erased gains after the opening, dropping by 3.22% to $218.69 as of press time. Credo's Chief Financial Officer, Daniel Fleming, stated that the company is confident about its business growth prospects in the coming year, expecting to continue its rapid expansion trend in fiscal year 2027. The impressive performance guidance also led to Wall Street analysts collectively raising profit forecasts and target prices. Needham analyst N. Quinn Bolton pointed out in a recent report that Credo expects about half of its additional revenue in fiscal year 2027 to come from its optical interconnect product portfolio, with the other half coming from its existing copper cable product portfolio, mainly including active electrical cables (AEC). Meanwhile, the company expects its fiscal year 2027 non-GAAP gross margin to roughly maintain the level of fiscal year 2026, with operating expenses increasing by about 50%, significantly lower than the revenue growth rate, and net profit margin expected to reach about 50%. Based on the company's latest outlook, Needham raised its fiscal year 2027 revenue forecast for Credo from $2.35 billion to $2.45 billion, reiterating a "Buy" rating and raising the target price from $220 to $275. The team of analyst Joseph Cardoso at JPMorgan Chase stated that the latest performance guidance indicates that the company's fiscal year 2027 performance upgrade primarily comes from its optical interconnect business rather than AEC products, suggesting that the second half of the year may see a more pronounced growth inflection point in the optical module business. However, the firm believes that the market should not interpret a conservative outlook for AEC growth as a contraction in market opportunities. Management has reiterated that AEC remains the company's "core growth engine," noting that adoption rates for AEC products by hyperscalers and emerging cloud service providers continue to rise. In addition, data center networks are gradually upgrading from 800G to 1.6T architectures, and the increase in average selling prices (ASPs) of related products will also provide the company with long-term growth momentum. Based on the above assessment, JPMorgan Chase maintains an "Overweight" rating for Credo and raises the target price from $230 to $250. Roth Capital also holds an optimistic view on the company's prospects, significantly raising the target price from $200 to $300 and maintaining a "Buy" rating. Analyst Suji Desilva at Roth Capital pointed out that Credo's AEC products are still expected to further penetrate large hyperscale cloud computing customers and emerging cloud service providers. At the same time, the outlook for the company's optical interconnect business is also promising, with zero forward (ZF) optical transceivers able to support longer distance connections within racks and complement the company's high-reliability AEC products established in inter-rack connections. The firm believes that Credo will continue to benefit from the ongoing upgrade of data center network channel speeds. Furthermore, compared to the company's current revenue mainly coming from the expansion of horizontal network interconnect business, the company still has broad development space in the vertical expansion interconnect market aimed at high-performance AI clusters. Analysts Joseph Stauff and Eric Mondelblatt at Susquehanna also raised their target price for Credo from $200 to $235 and maintained a "Positive" rating for the company. The two analysts predict that the company's vertical expansion business for interconnecting AI clusters will gain momentum in fiscal year 2027 and is expected to achieve larger-scale growth in fiscal year 2028. Meanwhile, the company's new product lines, Active Line Cables (ALC) and Gearbox chips, are also expected to enter mass production in fiscal year 2028, opening up new growth opportunities for the future. In addition to the prospects for revenue growth, the company's profitability performance has also surprised the market. Susquehanna pointed out that the company's latest quarter gross margin significantly exceeded market expectations, and management expects the gross margin for fiscal year 2027 to essentially maintain the level of fiscal year 2026, which is significantly better than the agency's previous expectation of a 300 basis point year-on-year decrease. However, the company expects operating expenses to increase by about 50% year-on-year, higher than the agency's previous expectation of about 25%. Boosted by Credo's strong performance, the AI network interconnect sector showed overall activity on Tuesday. Among industry peers, Marvell Technology, Inc. (MRVL.US) saw its stock price skyrocket by 26%, NVIDIA Corporation CEO Huang Renxun referred to Marvell as the "next trillion-dollar company," Astera Labs (ALAB.US) rose by over 7.8%, and Broadcom Inc. (AVGO.US) rose over 4%.