CRDO Stock on an Upswing Post Robust Q2: Hold or Make an Exit?

Core Insights - Credo Technology Group Holding Ltd (CRDO) reported a strong second quarter for fiscal 2026, leading to a 10.6% stock price increase post-earnings, reaching a new 52-week high of $213.80 [1][2] Financial Performance - CRDO's revenues surged 20% sequentially and 272% year-over-year to $268 million, significantly exceeding management's guidance of $230 million to $240 million [6][8] - Non-GAAP gross profit reached $181.4 million, up from $45.8 million year-over-year, with a gross margin expansion of 410 basis points to 67.7% [7] - Non-GAAP operating income was $124.1 million compared to $8.3 million in the prior-year period, while operating expenses increased 52.4% year-over-year to $57.3 million [7] - Cash flow from operating activities was $61.7 million, with free cash flow totaling $38.5 million, and cash and cash equivalents increased to $813.6 million from $479.6 million [9] Market Position and Growth Drivers - The company has expanded its hyperscaler base, with five hyperscalers contributing to revenue, enhancing its long-term total addressable market to over $10 billion [2][8][12] - Credo's leadership in the Active Electrical Cables (AEC) segment is a key growth catalyst, with AECs becoming the standard for inter-rack connectivity [11] - The introduction of three new multi-billion-dollar product pillars—Zero-Flap optics, Active LED cables, and OmniConnect gearboxes—broadens market opportunities [18][20] Future Outlook - CRDO anticipates revenues between $335 million and $345 million for the fiscal third quarter, implying a 27% sequential growth at the midpoint and over 170% year-over-year growth for fiscal 2026 [16] - The company expects significant growth in its IC portfolio, particularly in optical DSP deployments, with long-term upside tied to 200-gig per lane architectures [14][15] Competitive Landscape - CRDO's current valuation, with a forward Price/Sales ratio of 28.97, is higher than the Electronic-Semiconductors sector average of 7.92, indicating that much of the anticipated growth is already priced in [24][26] - The competitive environment includes established players like Broadcom and Marvell Technology, which may impact CRDO's growth trajectory [23]