To The Moon

The short version

Credo's sales more than doubled over the last year. The stock still fell 61% in five months.

My take: Credo is a fundamentally solid business with fast growth, real profits and no debt. The weak spots are that four customers make up most of its sales, and competitors are coming.

Smart Money: Price pulled back into my weekly Smart Money Zone last week and is now bouncing. At about $146, it's a decent discount, but the ideal entry was under $130.

Timing note: Morningstar's numbers use the $129.80 close. My chart shows about $146 on November 11, 2026.

1. Smart Money Framework: bouncing out of my weekly buy zone

Bottom line: Credo pulled back into my weekly Smart Money Zone last week, at $130 to $120, and it's bouncing. Buying now at about $146 is a decent discount. The extreme discount was under $130.

Every stock moves through the same cycle. I call it the Anatomy of a Cycle, and it has four phases: Ignition, Momentum, Shift and Reset. Here's where Credo is.

The bull cycle. Credo ran all the way to a high of $308.67 in June.

The Shift. Back in July, price broke its internal swing low and created a change of structure. That's what starts a redistribution phase. Since then, the stock has been in redistribution for multiple months and slowly sold off nearly 46%. Measured from the June high to last week's low, the full drop was about 61%.

The Reset. Last week, price pulled back into my weekly Smart Money Zone, at $130 to $120. This is my optimal buy zone after a long redistribution phase, and it's one of the strongest levels I have on the weekly time frame.

What's happening now. Price is bouncing out of the zone. This could be the beginning of a new bull cycle.

The trade. Looking at the technicals alone:

• Target: back to the swing high around $310, over the next 12 to 18 months.

• Stop: a protective stop at two candle closes under $80.

• In the zone (around $127): about 144% upside for about 37% downside. That's close to 4 to 1.

• Today (around $146): about 112% upside for about 45% downside. That's about 2.5 to 1.

  

Price has already bounced a lot. So buying now gets you a discount, but not an extreme discount. You're certainly not overpaying based on the framework. But the ideal entry would have been under $130.

How the fundamentals line up. Morningstar's computer model puts Credo's fair value at $146.77. That's almost exactly where the stock trades today. Inside my zone, the stock was 11% to 18% below that number.

So the chart and the fundamentals say the same thing. Under $130 was a real discount. At $146, you're paying a fair price for a fast-growing business with a lot of room back to the highs.

Why it fell so hard. Two things. In early September, the stock dropped about 20% in a day after earnings, even though results beat expectations, because management didn't raise its optical sales forecast. Then in early November, AI hardware stocks sold off after the November 3 elections, where several winning candidates had campaigned on limiting new data center construction. Credo had no bad news of its own that week.

2. How Credo makes money

Bottom line: AI data centers are full of chips that have to talk to each other. Credo sells the high-speed connections between them.

Think of an AI data center like a city. The AI chips are the buildings. But a city doesn't work without roads. Credo builds the roads: the cables and chips that move data between servers at very high speed.

Credo designs its products and outsources the manufacturing. Its customers are the giant cloud companies building AI data centers.

It sells three kinds of products:

• Active electrical cables (AECs). This is the main business. More than 90% of last quarter's sales growth came from AECs.

• Optical products. Chips and modules that send data as light instead of electricity. This is the next growth engine.

• Other chips and licensing. Signal-boosting chips, plus fees for licensing its technology.

So what is an AEC? Inside a data center, there are three ways to connect two machines. A plain copper cable is cheap, but the signal fades after a very short distance. An optical cable reaches far, but it costs more and uses more power. Credo's AEC sits in the middle. It's a copper cable with a small chip in each end that cleans up and boosts the signal.

Think of it like a hearing aid for a wire. It lets cheap, reliable copper do a job that used to need expensive optical gear.

The number to remember: four customers made up 84% of Credo's sales last quarter. That's great when they're spending. It's a risk if even one of them slows down.

3. The moat: narrow, and about to be tested

Bottom line: Credo created the AEC market and still owns almost all of it. The question is how much it keeps as bigger rivals show up.

A moat is whatever protects a business from competitors. Morningstar's computer model rates Credo's moat as narrow.

Here's what protects it:

• It builds the whole thing. Credo designs the chip, the cable and the software that monitors it. Most rivals only make one piece.

• A big head start. The CEO of one competitor, MaxLinear, estimated that Credo has 93% to 99% of the AEC market today.

• Customers don't switch easily. A cloud giant has to test and approve a cable before it goes into thousands of servers. Once you're approved, you tend to stay.

• It now owns optical technology too. Credo bought DustPhotonics this year for up to $1.3 billion, which gives it its own light-based chips.

And here's what threatens it:

• MaxLinear says it wants 20% to 30% of the next generation of AECs.

• Marvell agreed to buy Lumentum for $115 billion, a big bet that optical connections will take over more of the data center.

• Broadcom could enter next-generation cables.

  

My take: When you own almost 100% of a market, your share can really only go one way. The moat is real today, but the next two years will show how wide it is.

4. Growth opportunities

Bottom line: Credo is trying to go from a one-product company to a full connectivity company. Optical is the big swing.

• Still growing fast. Management is guiding to sales growth of more than 85% this fiscal year.

• Optical. Credo expects more than $600 million in optical sales this fiscal year. Three product lines (ZeroFlap optics, silicon photonics chips and optical DSPs) are each expected to bring in more than $100 million.

• DustPhotonics. The acquisition brings light-based chip technology in-house, so Credo can sell both the copper and the optical side of the data center.

• Faster cables. The next generation of AECs doubles the data each lane can carry, which means a new upgrade cycle.

• Profit growth. Analysts expect adjusted profit per share to go from $3.46 in fiscal 2026 to $9.71 in fiscal 2028.

  

Why it matters: About half of this year's expected growth is supposed to come from optical. If that works, Credo is no longer a one-product story.

5. Risks and weaknesses

Bottom line: The numbers are great. The risks are about who buys, who competes, and what happens to AI spending.

1. Four customers are 84% of sales. If one of them pauses orders, switches suppliers or builds its own, Credo feels it right away.

2. Competition is coming. MaxLinear, Marvell and Broadcom all want a piece of this market. More competition usually means lower prices and lower margins.

3. It all rides on AI spending. Almost all of Credo's demand comes from AI data center construction. If that slows, Credo slows.

4. Data center limits are a new risk. After the November 3 elections, investors are worried about new limits on data center construction, especially in Texas. Nothing has changed for Credo's orders yet, but it's why the stock sold off.

5. The second half has to deliver. To hit 85% growth, optical sales need to ramp in the back half of the fiscal year. In September, the stock fell about 20% in a day just because that forecast wasn't raised.

6. A big acquisition. Credo paid $750 million in cash, plus stock, for DustPhotonics. It has to pay off.

What I'm watching: the December 1 earnings report, and whether the big customers kept ordering.

6. Financial health

Bottom line: Credo is in excellent financial shape. It's growing fast, keeps about a third of its sales as profit, and has no debt.

Sales are exploding. Quarterly sales went from $72 million to $479 million in under two years. Last fiscal year (which ended around May 1, 2026), sales came in above $1.3 billion, more than triple the year before. Last quarter, sales grew 115%, and management expects about $530 million next quarter.

One thing to notice: growth is slowing. Year-over-year growth went from 272% four quarters ago to 115% now. That's normal as a company gets bigger, but it's part of why the stock cooled off.

It keeps a lot of what it sells. For every $100 in sales over the last 12 months, Credo kept about $67 after the cost of making its products, and about $34 as bottom-line profit. Two years ago, this company was losing money.

Profit and cash. Over the last 12 months, Credo earned $538 million in profit and produced $439 million in free cash flow. That's cash left over after paying for everything, including equipment.

No debt. Credo has $764 million in cash and short-term investments and zero debt. It had about $1.4 billion before it paid $750 million in cash for DustPhotonics.

One thing I'm watching: inventory rose $62 million in a single quarter, to $313 million. Building inventory ahead of big orders is normal. Inventory that keeps piling up while sales slow would be a warning sign.

The takeaway: This is a healthy, profitable, debt-free business. The financial risk isn't the balance sheet. It's whether the growth keeps coming.

Is the stock cheap?

Bottom line: It's cheaper than it's been in three years, and about fair at today's price.

• Price to next year's expected earnings (forward P/E): about 21x at the $129.80 close. It was 44x at the end of June, and the three-year average is 63x. The stock fell much faster than the profit forecasts did.

• Price to past earnings: about 47x. On profits it has already earned, it still looks expensive. You're paying for growth.

• Price to sales: about 16x. Not cheap either.

• Morningstar fair value: $146.77. At $129.80, that was a 4-star rating (undervalued). At about $146, it's right at fair value. This is a computer-model rating, not a human analyst's.

  

What this means: Credo isn't cheap like a bargain-bin stock. It's cheap for a company growing this fast, as long as the growth shows up.

Bull case vs bear case

The bull case: Credo sells something every AI data center needs, and it owns almost the entire AEC market. Sales grew 115% last quarter, it keeps about a third of sales as profit, and it has no debt. The stock's forward P/E has been cut in half since June, and price is bouncing out of my weekly Smart Money Zone with about 112% upside to my target.

The bear case: Four customers are 84% of sales. Bigger rivals are coming for the AEC market, and optical could take share from copper over time. Growth is slowing, the whole business rides on AI spending, and new limits on data center construction could slow its customers down. The stock has already bounced about 22% from the low, so the easy part of the entry is gone.

My verdict: Is Credo fundamentally solid?

Yes.

Fast growth, real profits, strong cash flow and no debt. That's a fundamentally solid business. The two things that keep it from being a perfect score are customer concentration and new competition.

Here's how I put it all together:

• Fundamentals: A solid, fast-growing business trading at about fair value.

• Smart Money: Bouncing out of my weekly Smart Money Zone, one of the strongest levels I have on the weekly time frame. This could be the start of a new bull cycle.

• Would I be a buyer? At about $146, it's a decent discount, and I'm not overpaying based on my framework. But the ideal entry was under $130. My target is around $310 over 12 to 18 months, with a protective stop at two closes under $80.

What I'm watching: the December 1 earnings report, optical sales in the second half, and whether price holds above the zone.

What I want you to remember

1. The price and the business are two different things. Credo's sales more than doubled while the stock fell 61%.

2. Your entry changes the whole deal. Same target, same stop: about 4 to 1 in the zone, about 2.5 to 1 after the bounce.

3. Concentration cuts both ways. Four big customers made Credo. Four big customers are also its biggest risk.

4. Know your exit before you enter. My stop is two closes under $80. I decided that before the trade, not during it.