Can Credo Sustain Momentum in Optical Business Amid Competition?

Core Insights - Credo Technology Group Holding Ltd (CRDO) is experiencing rapid growth in its optical business, with management projecting a doubling of revenues in fiscal 2026 [1][10] - The company’s optical digital signal processor (DSP) portfolio is tailored to meet the increasing connectivity demands of data centers and hyperscale networks driven by AI infrastructure [1] Group 1: Optical Business Performance - Credo's optical DSP portfolio includes full DSP and linear receive optical (LRO) solutions, supporting port speeds up to 1.6 terabits per second, which are gaining traction among optical module makers and hyperscale customers [2] - The company introduced the Bluebird DSP, a high-performance, low-power solution for 1.6Tbps optical transceivers, which operates under 20 watts, making it suitable for dense AI and hyperscale data centers [3] - In fiscal 2026, Credo anticipates mid-single-digit sequential revenue growth, leading to approximately 120% year-over-year growth, with non-GAAP net margin projected around 40% [5][10] Group 2: Competitive Landscape - Credo faces competition from semiconductor giants like Marvell Technology and Broadcom, which are also advancing their optical DSP strategies [6] - Marvell is enhancing its leadership in AI interconnect and optical technologies, with expectations of double-digit sequential growth in its electro-optics portfolio [7][8] - Broadcom maintains a dominant position in the optical DSP market, leveraging its extensive portfolio and customer relationships to support AI infrastructure [9] Group 3: Market Performance and Valuation - CRDO shares have increased by 156.3% year-to-date, outperforming the Electronics-Semiconductors industry's growth of 34.2% [12] - The forward 12-month price/sales ratio for CRDO is 28.68, significantly higher than the sector's multiple of 9.35 [13] - The Zacks Consensus Estimate for CRDO earnings for fiscal 2026 has been revised upward over the past 60 days, indicating positive market sentiment [14]