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01 Jun 2023
Turning The Corner, But Not Yet Out Of The Woods
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Turning The Corner, But Not Yet Out Of The Woods
- Published:
01 Jun 2023 -
Author:
Ackerman Karl KA | Pu Yang YP -
Pages:
10
The revenue and earnings trajectory should improve as Credo expands its design funnel of optical cables and semiconductor components for high-speed networking applications. We have conviction Credo can more than double sales and achieve $0.60 EPS by CY25. TP raised to $16.
What We Learned In The Quarter
Credo reported above the high-end of its prior outlook and guided CQ2 above consensus on higher revs and GMs. The company didn''t give an update to its full year guide, but Credo indicated that revenue should grow sequentially each quarter in FY24 (March ''24). To us, the decline of active electrical cable (AEC) sales to a US hyperscaler in CQ1 was much better than feared. Visibility on the timing of revenue recognition at key hyperscale customers has understandably been tempered given shortening lead times across the supply chain, but we remain encouraged by the expanding design engagements Credo has at multiple data center customers. These engagements indicate a broadening of preconfigured AECs and optical DSPs for high-speed networking applications running on Ethernet (i.e., RoCE fabric) inside both AI clusters and traditional leaf/spine networking deployments.
What To Do From Here
Credo''s dominant position in SerDes IP and portfolio of purpose-built mixed-signal and DSP architectures position CRDO well to capitalize on solving the bandwidth and data transfer problems to support artificial intelligence and machine learning compute clusters in data center networks. We think Credo is a pure-play on the growth of high-speed networking used in Ethernet networks, and it''s opportunity is just beginning to blossom.
Valuation and Target Price
We are raising our TP from $13 to $16, which is based on a peer 7x (was 6x) our upwardly revised CY2024E EV/S despite 2x higher growth. Our sales estimates are now ahead of consensus.