The investor response to a beat-and-raise earnings report from Credo Technology (CRDO) is the latest sign that interest in AI stocks has waned.

Credo late Tuesday said its adjusted earnings soared 525% year over year to 25 cents a share in its fiscal third-quarter ended Feb. 1. Its sales jumped 154% to $135 million. Analysts polled by FactSet had expected earnings of 18 cents a share on sales of $120.4 million.

For the current quarter, Credo predicted sales of $160 million, based on the midpoint of its guidance. That would represent year-over-year growth of 163%. Analysts were looking for $137 million.

San Jose, Calif.-based Credo makes high-speed connectivity components for data centers. Its largest customer is Amazon.com's (AMZN) Amazon Web Services. Amazon accounted for 86% of Credo's revenue in fiscal Q3.

In midday trades on the stock market today, Credo stock dropped more than 16% to 45.43.

Year to date, Credo stock is down 33% despite the company seeing blistering growth from the buildout of AI data centers.

AI Stocks Getting Beat Down

AI stocks in the data center infrastructure space have fallen this year. Nvidia (NVDA) stock is down 14% so far this year. Broadcom (AVGO) is down 18%. Marvell Technology (MRVL) is down 21%. Astera Labs (ALAB) is down 49%. Vertiv (VRT) is down 23%.

Mizuho Securities trading desk analyst Jordan Klein called it "the busted AI trade" in a client note Wednesday.

"I am personally not letting this AI unwind change my conviction into second-half 2025 and beyond," Klein said. "It will come back strong in 2H25 is my prediction. Mark it down."

The next challenge to AI stocks will be earnings reports from two custom AI chipmakers, Marvell and Broadcom. Marvell will post its fiscal fourth-quarter results late Wednesday. Broadcom will announce its fiscal first-quarter results late Thursday.

"Just clear as day that funds are looking for any reason to reduce exposure and positions to the AI semi, hardware, optical, interconnect stocks right now," Klein said.

In a client note Wednesday, Bernstein analyst Stacy Rasgon said AI stocks in the infrastructure space have been "battered by a storm of growth fears, supply chain noise, and tariff and regulatory risks."

Rasgon remains positive on AI chip stocks such as Nvidia for now. "Worries that the AI trade is 'over' feel a little premature to us, and valuation is getting increasingly attractive."

Follow Patrick Seitz on X, formerly Twitter, at @IBD_PSeitz for more stories on consumer technology, software and semiconductor stocks.

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