I opened the Credo chart on the morning of September 2nd and paused for a moment. Although both revenue and profit exceeded expectations, the price had dropped by 201 TP and 3 T in just one day. So, I spent three weeks re-evaluating the numbers. My conclusion is a Hold, with a baseline 12-month target of $200. I will explain step-by-step why my calculations diverged from the market's.
The reference date for the numbers is the US market close on September 21, 2026, and I wrote the Won standardized at 1,386.2 Won per Dollar.
- First, a three-line conclusion, and then what kind of company CRDO is.
- CRDO Q1 Earnings: Let's take a closer look at the numbers that led to -201 TP3 T in a single day.
- Credo (CRDO) Valuation: Is 26x forward expensive?
- CRDO Target Price Scenarios and Expected Returns
- With the $600 million optical sales target and the new 1.6T product, where will the growth come from?
- CRDO Risks and Bear Triggers
- Personally, this is a point that bothers me.
- CRDO Investment Conclusion: Hold, Baseline Target Price $200
- Frequently Asked Questions
- source
First, a three-line conclusion, and then what kind of company CRDO is.
First, Credo's revenue for the first quarter of fiscal year 2027 was $479 million (approximately 664 billion KRW), an increase of 114.71 TP3T from a year ago, while net income for the same quarter decreased by 23.51 TP3T from the previous quarter. The fact that revenue increased but profit decreased means that the rate of spending was faster than the rate of earning.
Second, thanks to the stock price dropping 381 TP3T from its peak, the valuation is no longer extremely expensive. The price-to-earnings ratio I calculated based on projected earnings over the next 12 months is approximately 26 times, which is lower than the median of competitors.
Third, however, my recommendation is to hold rather than buy. I will explain the reason in detail later, but to summarize in one sentence, it is because the fair price based on multiples and the fair price calculated based on cash flow are diverging too significantly.
Credo Technology is a company that manufactures connecting components that link chips to chips and servers to servers within AI data centers. If we liken an AI data center to a large factory, and NVIDIA is the expensive machinery, Credo is closer to a company that sells the wires and conduits connecting those machines. Its flagship product is Active Electric Cable (AEC, a copper cable equipped with a signal amplification chip to transmit data over long distances), which is equipped with a DSP chip for handling optical signals and an optical transceiver.
In May of this year, the company acquired Dust Photonics, an Israeli silicon photonics firm, for $735.62 million in cash plus stock. Silicon photonics is a technology that uses semiconductor manufacturing processes to produce components that transmit data using light; with this acquisition, Credo has become a company capable of selling a bundle of products, ranging from signal processing chips to optical components. It has 807 employees and a market capitalization of $35.2 billion.
CRDO Q1 Earnings: Let's take a closer look at the numbers that led to -201 TP3 T in a single day.
First, let's start with the positive side. Revenue for the first quarter of fiscal year 2027, announced after the market close on September 1, was $479 million, exceeding the consensus (average of analyst forecasts) of $471.8 million. Additionally, the company's adjusted non-GAAP earnings per share were $1.20, surpassing expectations of $1.17. This marks the seventh consecutive quarter of triple-digit growth, and the guidance for the second quarter was also generous, ranging from $525 million to $535 million.
However, the stock price fell in after-hours trading on the day of the announcement and plummeted by 20.041 TP3T the next day. Trading volume surged more than fourfold, rising from the usual 7.3 million shares to 30.11 million. I didn't understand it at first either, so I scanned the income statement line by line, but the problem wasn't the revenue; it was the line below it.
The Generally Accepted Accounting Principles (GAAP) gross profit margin fell by 3.71 points from 68.21 points in the previous quarter to 64.51 points. This means that the profit remaining after deducting the cost of goods sold for every 100 won sold decreased from 68 won to 64 won. The operating profit margin was even more severe, dropping by 10.51 points from 35.71 points to 25.21 points. This was due to operating expenses jumping by 32.51 points in just one quarter, from $142.22 million to $188.38 million; R&D expenses rose to $114.52 million (approx. 158.8 billion won), and selling and administrative expenses increased to $73.86 million (approx. 102.4 billion won).
As a result, revenue increased by 9.61 TP3T compared to the previous quarter, but net income decreased by 23.51 TP3T from $169.1 million to $129.43 million (approx. 179.4 billion KRW). There is one more point here that I paid closer attention to. Quarterly stock compensation expenses were $87.98 million (approx. 122 billion KRW), which was 18.41 TP3T of revenue, and this was greater than the free cash flow of $82.95 million (approx. 115 billion KRW) in the same quarter. Free cash flow is the actual cash remaining after deducting capital expenditures from earnings; the fact that the value of the stock distributed to employees is greater than that cash means that the remaining cash effectively does not belong to the shareholders.
Inventory and accounts receivable also grew faster than sales. Inventory stood at $313.05 million (approximately 434 billion won), extending the turnover period from 162 days to 168 days, while the accounts receivable collection period lengthened from 48 days to 55 days. Conversely, the balance sheet itself remains robust. With cash and cash equivalents of $764.26 million (approximately 1.0594 trillion won) and total liabilities of only $26.21 million (approximately 36.3 billion won), the company is virtually debt-free, and the current ratio stands at 7.4 times.
Credo (CRDO) Valuation: Is 26x forward expensive?
This is the center of gravity of this article. Instead of using the current multiple as the target price, I calculated it by directly accumulating the expected earnings for the next 12 months and then determining the appropriate multiple separately.
First, I added up the quarterly non-GAAP earnings per share for the next 12 months. I estimated the figure at $7.20, combining the Q2 consensus of $1.28, Q3 around $1.85, Q4 around $2.05, and Q1 of the next fiscal year around $2.10. Dividing this by the current price of $187.27 (approximately 259,594 KRW) gives a forward price-to-earnings ratio of 26.0. This means that current earnings would need to accumulate for 26 years to reach the current share price, but considering the growth rate, it is not such a frightening figure.
Where would you say it compares to competitors?
| event | Market capitalization | Sales growth rate over the past year | Gross profit margin | Leading 12-month P/E (estimate) |
|---|---|---|---|---|
| CRDO | 48.8 trillion won | +114.7% | 67.1% | About 26 times |
| Astera Labs (ALAB) | 81.9 trillion won | +104.5% | 75.1% | About 59 times |
| Marvel (MRVL) | 320.6 trillion won | +36.5% | 52.2% | About 44 times |
| Broadcom (AVGO) | 2,399.8 trillion won | +85.5% | 75.5% | About 20 times |
You should read this table from left to right. The key point is that while Credo is growing the fastest among the four, its multiples are the second lowest. The median leading multiple for the three competitors is about 44x, but I didn't use that exactly. Astera Labs is pulling the group up to 59x, When I opened up Astera Labs last week That company also had question marks regarding the quality of its earnings. Valuing something based on its expensive neighbors is, in itself, an anchoring fallacy.
So, I deducted three things from the competitor median of 44 times. First, since stock compensation expenses are 181 TP3T of revenue, the actual content of non-GAAP earnings is Mature companies like BroadcomIt is lower. Second, the top four customers account for the 801 TP 3T range of revenue. Third, the amortization of intangible assets resulting from the acquisition of Dust Photonics will continue to suppress profits going forward.
The picture changes if you calculate it using cash flow.
I also calculated the same company using DCF. DCF is a method for determining a theoretical fair value by converting a company's future cash earnings into today's value and adding them together. I set the discount rate (WACC, the rate used to reduce future money to today's value) to 9–121 TP3T, the terminal growth rate to 3.0–3.51 TP3T, and the forecast period to 7 years. I assumed that the free cash flow for fiscal year 2027 would start at a level of 221 TP3T of revenue and rise to 301 TP3T in the long term.
The resulting fair price range per share was $105 to $155. Since this figure was far from the value calculated using multiples, I recalculated it three times, but the results were similar. This is the decisive reason why I could not raise this stock to Buy. In other words, the entire AI-connected semiconductor industry is currently trading at multiples that are not justified by cash flow, and Credo is merely relatively cheap within that group.
CRDO Target Price Scenarios and Expected Returns
I determined the baseline target price by combining relative comparison (weighted 60%) and DCF (40%). This result is obtained by combining the value obtained by multiplying an appropriate multiple of approximately 27.8 times by the forward 12-month earnings per share of $7.20 and the median DCF value of $130.
| scenario | 12-month target price | Korean Won Conversion | Compared to the current price | weight | Key assumptions |
|---|---|---|---|---|---|
| stress | $260 | 360,412 won | +38.8% | 28% | Annual revenue exceeding $2.6 billion, optics $700 million, revalued at 33x multiple |
| basic | $200 | 277,240 won | +6.8% | 48% | Revenue of $2.47 billion as per guidance, fair multiple of 27.8x |
| Weakness | $144 | 199,613 won | -23.1% | 24% | Earnings per share reduced to $5.8 and multiple to 25x due to delays in second-half capacity expansion |
You need to look at this table including the weight column at the very bottom. The weighted average of the three scenarios yields $203.4, and the expected return relative to the current price is +8.61 TP3T. In my opinion, since the expected return for a Buy is over 121 TP3T, this falls into the Hold zone.
Let me also explain why I slightly shifted the weights from 50/25/25 to 48/28/24. I added more weight to the bullish side because the valuation signal leans slightly towards undervaluation (-6.41 TP3T relative to fair value) and there is a real catalyst for new products. However, I also set a high bearish weight of 241 TP3T; this stock dropped to $150.09 (approximately 208,055 KRW) just a week ago on September 14th. With a beta of 3.23, it tends to fluctuate by more than 31 TP3T when the market moves 11 TP3T, so I did not force the bearish scenario into a textbook range.
For reference, the average target price of 19 Wall Street analysts is $280.10 (approximately 388,275 KRW), and their investment recommendation is Strong Buy. My $200 target is 291 TP3T lower than that. The point of difference is clear. The market views stock compensation expenses as not being an expense and assigns a multiple of nearly 40 times to non-GAAP earnings, whereas I view those expenses as genuine costs and have weighted cash flow at 401 TP3T.
With the $600 million optical sales target and the new 1.6T product, where will the growth come from?
The company stated that revenue for fiscal year 2027 is expected to increase by more than 851 TP3T. Applying this to the previous year's revenue of $1.33512 billion (approximately 1.85 trillion won), it amounts to $2.47 billion (approximately 3.42 trillion won). However, even if we add the first-quarter result of $479 million to the midpoint of the second-quarter guidance of $530 million, the first half comes to $1.009 billion. They need to achieve $1.461 billion in the second half, which is 44.81 TP3T more than the first half.
I also wondered if this was possible at first, but my opinion changed a bit after looking at past quarters. Just around this time last year, Credo boosted its quarterly revenue from $268.03 million to $407.01 million in a single quarter, an increase of 51.91 TP3T. Since the third-quarter growth rate I am requesting is just over 321 TP3T, this falls within the range the company has already demonstrated.
The main driver of this growth is the optics sector. The company stated that it aims to surpass $600 million (approximately 831.7 billion KRW) in optics revenue alone in fiscal year 2027, with ZeroFlap optical transceivers, silicon photonics chips, and optical DSPs each exceeding $100 million. On September 16, the company unveiled a 1.6T ZeroFlap transceiver based on 224G per lane, equipped with a real-time monitoring function that detects optical cable disconnections before they occur. Since hundreds of servers shut down simultaneously if AI training is interrupted even once, this feature effectively sells stability over performance. This is also the reason behind the stock price rebounding 24.81 TP3T from its low on September 14. If you are curious about the entire optical communications value chain... POET Analysis ArticleIf you look at it together, you will get the picture.
CRDO Risks and Bear Triggers
I organized the risks in the order of “what → how → where to verify.”.
- Customer focus → We have four hyperscaler customers exceeding 101 TP3T, and our largest customer accounts for 331 TP3T of revenue. If just one customer delays an order, the entire quarterly revenue is shaken. → You can verify this in the customer concentration notes of the quarterly report. Those facing the same concerns Arista Networks Case StudyYou'll get the hang of it if you compare it with that.
- Implementation of expansion in the second half of the year To meet the annual guidance, a revenue jump of over 301 TP3T in the third quarter compared to the previous quarter is needed. If it is not met, the bearish scenario of $144 becomes a reality. → The second-quarter earnings and third-quarter guidance, to be announced in early December, will be the first test case.
- Margin dilution → As the proportion of cheaper optical products increases, the average profit margin decreases. The gross profit margin has already dropped by 3.71 TP in one quarter. → Check if the non-GAAP gross profit margin falls further below 681 TP each quarter.
- Quality of earnings Stock compensation expense is greater than free cash flow, and the number of diluted shares increased by 5.31 TP over the past year. It is a structure where the shareholders' share is quietly shrinking. → You should look at the stock compensation expense line and the number of diluted shares together in the cash flow statement.
- Volatility It has a beta of 3.23 and a 3-month drop of 381 TP3 T. By the same logic, it jumps quickly upwards, but if the size is unmanageable, you should reduce your position.
If I had to pick just one bearish trigger, I would choose the Q3 guidance. Since the promise of 851 TP3T annual growth is concentrated in the second half of the year, if Q3 revenue remains in the low $600 million range at the December announcement, the market will stop trusting the annual guidance itself.
Personally, this is a point that bothers me.
While reading the earnings report, the part where I paused the longest was the line regarding goodwill. Following the acquisition of Dust Photonics, goodwill grew from $92.8 million to $986.45 million (approximately 1.3674 trillion won), and intangible assets increased from $29.26 million to $378.82 million (approximately 525.1 billion won). Combined, these two items account for 451 TP3 T of total assets. This means that intangible assets fill half of the company, and they are the type of assets that must be written off as impairment losses in a single quarter if the acquired technology does not sell as expected. At this point, I decided to only partially finalize my judgment.
One more thing. When I created a table and placed the stocks side-by-side with competitors, there was a moment when I became confused about whether I was truly evaluating Credo or the entire AI-connected semiconductor sector. The fair value based on cash flow for all four stocks comes out to be about half their current prices. If the entire sector is revalued, the fact that Credo is relatively cheap will not serve as much of a shield. Therefore, I viewed this stock not as a "buy because it is cheap," but as a "place where the reason to sell because it is not expensive has disappeared.".
CRDO Investment Conclusion: Hold, Baseline Target Price $200
There are three reasons why I rated it as Hold. First, the current multiple is 26.0x compared to the optimal multiple of 27.8x, so the valuation signal is nearly neutral at -6.41 TP3T. Second, the weighted average expected return across the three scenarios is +8.61 TP3T, which fell short of my Buy threshold of +121 TP3T. Third, while revenue growth remains top-tier, the quality of margins and cash flow is not keeping pace. Since only three out of the four signals match, I set the confidence level to Medium.
If you currently hold the stock, I believe it is reasonable to hold on until you confirm the Q3 guidance during the Q2 earnings round in early December. If you do not yet own the stock, there appears to be no reason to rush. Conversely, the conditions for me to upgrade my rating to Buy are clear: Q3 revenue exceeding $700 million, a non-GAAP gross margin held above 681 TP3T, and the stock-to-revenue ratio falling below 151 TP3T. Once these three conditions are confirmed, I can raise the fair multiple to 33x, and the target price will shift toward a bullish scenario.
Frequently Asked Questions
What is the target price for CRDO?
My 12-month baseline target price is $200 (approximately 277,240 KRW). I set the target at $260 for a bullish scenario and $144 for a bearish scenario. This is more conservative than the average target price of $280.10 from 19 Wall Street analysts because I treated stock compensation as a true cost and reflected a fair value of 401 TP 3 T based on cash flow.
Why did the stock price drop by 201 TP3 T in a single day when the earnings were good?
While revenue and earnings per share exceeded expectations, the figures below them were poor. The gross profit margin fell by 3.71 points and the operating profit margin by 10.51 points in the quarter, while operating expenses jumped by 32.51 points. Since net profit decreased by 23.51 points while revenue increased by 9.61 points, it is as if the market has recalculated the price of growth.
Should I buy Credo stock now?
In my opinion, it is a Hold position, so I do not view it as a good time to aggressively buy. The expected return is around +8.61 TP3T, so the reward relative to the risk is not ample. However, thanks to the drop of 381 TP3T from the peak, it is not in an extremely expensive zone like it used to be, so if you already hold it, I do not think it is a good time to cut your losses.
What is Credo's biggest risk?
The point is that the two factors overlap: performance concentration in the second half and customer concentration. Of the promised annual growth of 851 TP3T, 591 TP3T is concentrated in the second half, and a significant portion of that revenue comes from a small number of hyperscalers. You need to be careful, as the structure is such that even a delay in an order from just one customer could shake the annual guidance.
source
- Credo IR — Q1 2027 Fiscal Year Earnings Press Release
- SEC — Credo Technology 2026 Fiscal Year Annual Report (10-K)
- Credo IR — Disclosure of Completion of Dust Photonics Acquisition
- The Motley Fool — Full Transcript of Q1 Fiscal Year 2027 Conference Call
- Stock Price & Financial Data: Yahoo Finance (As of closing price on September 21, 2026)
I drafted this article with the help of AI research tools and personally verified the numbers and logic before publication. Stock price, exchange rate, and earnings estimates are based on the time of writing and are subject to change. This article is intended for informational purposes only and does not recommend the purchase or sale of any specific stock. Please remember that investment decisions and their consequences are solely the responsibility of the investor.