Up 30%, Should You Buy Credo Technology Right Now?
Key Points
Credo's revenue more than doubled year over year in its latest quarter, and the company also has excellent net profit margins.
High-speed connectivity chips and cables are bound to gain more demand as AI infrastructure scales.
If AI spending continues to rise and businesses see positive returns on their investments, that broad tailwind should lift Credo Technology shares higher.
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Credo Technology (NASDAQ: CRDO) is up by 30% this year as investors continue to buy into the AI thesis. The company's high-speed connectivity chips and cables help data move quickly throughout data centers.
The basic investment idea is sound, but there's far more to buying a stock than just understanding what the company does. These are some of the details to consider before buying Credo Technology at its current level.
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Scaling AI infrastructure sets Credo Technology up for long-term growth
High growth rates are a bullish indicator for any company, but they're more important for AI stocks. Investors can choose from many high-growth companies with exposure to AI, but Credo Technology is gaining market share faster than most.
The company delivered 114.7% year-over-year revenue growth in its fiscal 2027 first quarter. For its fiscal Q2, management is guiding for between $525 million and $535 million in revenue, which would equate to 10.6% sequential growth at the midpoint.
Credo Technology CEO Bill Brennan expressed confidence in how the company's product portfolio will perform as AI infrastructure continues to scale. The accelerating data center build-out will increase demand for Credo's connectivity chips and cables.
According to a recent forecast from Fortune Business Insights, the global artificial intelligence market is expected to grow at a compound annualized rate of 26.6% through 2034. That suggests that Credo Technology has a multiyear runway. The market research firm also notes that North America had a 31.8% share of the global AI market last year. Most of the largest hyperscalers are prioritizing North America for their AI infrastructure, and continued demand in this region will bode well for Credo Technology.
AI spending is rising and translating into positive returns
AI models like ChatGPT and Gemini have already laid the foundation for parabolic growth in AI demand. With agentic AI on the horizon, more data centers will be needed, especially as AI delivers meaningful value to companies.
New BCG Research found that almost half of companies investing in AI have started to generate positive value from those investments. Furthermore, corporate AI spending has doubled in a year. Almost half of companies are also expected to give AI agents real decision-making authority by 2030.
Positive returns could create a continuous loop of increased AI investments, higher profits, and more corresponding investments. This feedback loop should drive demand higher for Credo's offerings, as immense amounts of hardware will be required to further scale artificial intelligence.
If AI spending continues to rise, Credo Technology can continue to double its revenue year over year and outpace the S&P 500 (SNPINDEX: ^GSPC). The company also boasted a high net profit margin of 27% in its most recent fiscal quarter.
Should you buy stock in Credo Technology Group right now?
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Marc Guberti has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
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