BofA Double Upgrades $CRDO to Buy from Underperform, Raises PT to $80 from $27
Analyst comments: "Following a solid beat and material raise earnings call, we double upgrade Credo, and raise FY26/27E EPS est. by 65%/88% to $1.01/$1.51, and take our price objective to $80 from $27.
Our new price objective is based on 60x CY26E PE (from 10x CY25E EV/S previously as Credo shifts to translating sales growth to better earnings growth), inline with the higher end of comps, as CRDO’s outlook suggests the start of a multi-year adoption cycle for its Active Electrical Cable (AEC) product that enables power-efficient AI clusters.
Near term, we see the company driving a strong 2HFY25E (Jan25Q plus Apr25Q), driven by strong AI growth at Amazon Web Services, a key customer (and investor) in CRDO. Our prior cautious view was based on limited TAM assumptions for AEC, but CRDO’s earnings call addressed those concerns nicely, with three 10% customers (Microsoft, Amazon, Tesla) and growing momentum in other adjacent areas (optical DSP, line card PHY, retimer).
Risks to our call are CRDO’s premium valuation, high sensitivity to any sentiment shift around AI deployments, and growing competition in the AEC market (from $MRVL, $AVGO)."
