Credo Technology Group CRDO shares have plunged 30.9% in the year-to-date period, underperforming the broader Zacks Computer & Technology sector’s decrease of 5.8% and the Zacks Electronics - Semiconductors industry’s decline of 13.5%.

Credo Technology has also underperformed its industry peers, such as Synopsys SNPS, Marvell Technology MRVL and Broadcom AVGO, in the year-to-date period. SNPS, AVGO and MRVL shares have plunged 9.6%, 17.8% and 21.4%, respectively, in the year-to-date period. The underperformance can be attributed to stiff competitive pressures and macroeconomic uncertainties.

However, the company reported solid third-quarter fiscal 2025 results on Tuesday, with both earnings and revenues surpassing the Zacks Consensus Estimate.

CRDO reported earnings of 25 cents per share in the fiscal third quarter of 2025, beating the Zacks Consensus Estimate by 38.89%. The company reported earnings of 4 cents per share a year ago.

CRDO Underperforms Sector, Industry

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CRDO reported $135 million in revenues, up 87% sequentially and 154% year over year, beating the Zacks Consensus Estimate by 12.50%. This surge was mainly driven by its largest hyperscale customer, which significantly scaled the production of AI platforms, reflecting the growing demand for AI-powered connectivity solutions.

Robust Portfolio to Aid CRDO’s Prospects

Credo Technology’s growth was also supported by its Active Electrical Cables (AEC) product line. AEC products experienced triple-digit sequential growth in the third quarter of fiscal 2025, driven by its increasing adoption in the data center market.

The demand for AECs grew as they proved to be more reliable than laser-based optical solutions, with ZeroFlap AECs offering more than 100 times better reliability than rack-to-rack solutions. This made AECs an increasingly attractive option for data center applications, contributing to the new expansion of AEC usage and further solidifying Credo Technology’s position in the market.

Further expanding its portfolio, Credo Technology’s optical business, particularly Optical DSPs, saw strong growth in the third quarter of fiscal 2025. The company engaged with transceiver vendors to deliver 50G and 100G per lane designs for Active Optical Cable and transceiver applications, which led to increased market demand.

CRDO’s PCIe 5.0 Retimer Achieves PCI-SIG Compliance

Credo Technology’s retimer business continued to gain momentum. Its PCIe retimers and Ethernet retimers saw strong customer interest, especially for scale-out networks in AI servers. This growing demand underscores the increasing importance of high-performance solutions in the rapidly expanding AI server market.  
 
Building on this momentum, Credo Technology recently announced that its PCIe 5.0 specification-capable “Toucan” retimer successfully passed testing at the PCI-SIG Compliance Workshop 133 in Taipei. This achievement highlights Credo Technology’s commitment to meeting the stringent standards of the PCIe 5.0 specification, further reinforcing its reputation in the market.

The milestone ensures the retimer meets PCIe 5.0 standards and will now be listed on the PCI-SIG Integrators List. This will provide system designers with best-in-class latency and reach for building high-performance, reliable PCIe systems.

PCIe retimer demand is expected to exceed $1 billion by 2027, positioning Credo Technology for significant future revenue growth.

CRDO Initiates Strong Q4 Guidance

CRDO’s robust portfolio and expanding AI-driven market opportunities are expected to benefit the company’s financial performance. 

For the fiscal fourth quarter of 2025, CRDO expects revenues between $155 million and $165 million.

The Zacks Consensus Estimate for fiscal fourth-quarter revenues is pegged at $135.25 million, suggesting growth of 122.52% from the year-ago quarter’s reported figure.

The consensus mark for fiscal fourth-quarter earnings is currently pegged at 22 cents per share, unchanged over the past 30 days. This indicates growth of 214.29% on a year-over-year basis. 

Find the latest EPS estimates and surprises on Zacks Earnings Calendar.

Headwinds Hindering Credo Technology’s Growth Momentum

Despite Credo Technology’s strong performance and innovative solutions, several challenges pose headwinds to its prospects. The rapid evolution of AI cluster architectures is increasing the pressure on CRDO to address network disruptions, such as link lapses, which can lead to costly downtime and productivity loss. 

Credo Technology’s transition toward PCIe Gen 6 is also presenting competitive and developmental challenges as customers demand higher performance and robust support. These factors, along with increasing market competition and macroeconomic uncertainties, may impact CRDO’s growth trajectory.

CRDO Trading at a Premium

Credo Technology stock is also not so cheap, as its Value Style Score of F suggests a stretched valuation at this moment.

In terms of the forward 12-month Price/Sales ratio, CRDO is trading at 16.46, higher than the Zacks Computer & Technology sector’s 5.97.

Price/Sales (F12M)

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Conclusion

Credo Technology is benefiting from an innovative portfolio and expanding AI-driven market opportunities. 

However, competitive pressures and macroeconomic uncertainties pose risks. Stretched valuation also remains a concern.

Credo Technology’s Growth Score of C suggests that the stock is unattractive for growth-oriented investors.

CRDO currently has a Zacks Rank #3 (Hold), suggesting that it may be wise for investors to wait for a more favorable entry point in the stock. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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