Credo (CRDO) Has Nearly 38% Upside to Rosenblatt’s Target—What’s Holding It Back?

Michael Genovese of Rosenblatt Securities maintained a Neutral rating for Credo Technology Group Holding Ltd (NASDAQ:CRDO) on September 2, raising the price target from $215 to $235. This equates to a potential upside of nearly 38% from the September 4 closing price. Genovese's price target revision was influenced by the company's recently announced Q1 FY27 results, which led to an upward adjustment in projections for both FY27 and FY28.

Nevertheless, Genovese's Neutral stance persists due to his desire for greater visibility into the company's ZeroFlap Optical Transceivers and the incremental revenues generated from its acquisition of Dust Photonics in May. The acquisition of DustPhotonics results in a vertically integrated connectivity stack, covering DSP, silicon photonics, SerDes, and system integration.

With its optical DSPs and ZeroFlap transceivers, Credo is anticipated to be a significant growth driver in FY27, bolstered by the positive sentiment from hyperscale customers.

Following the acquisition of DustPhotonics, Credo reported a robust first quarter for FY27, with total revenue jumping 115% to $479 million, compared to Q1 in FY26. Adjusted non-GAAP net income of $236.3 million surged 140% year-over-year, as the company expanded its connectivity portfolio, encompassing copper and optical solutions from millimeters to kilometers. This capability enables Credo to accommodate the scaling requirements of AI infrastructure with energy-efficient and dependable products.

In FY27, Credo projects strong inflection with optical revenues expected to surpass $600 million. The management anticipates contributions of over $100 million each from silicon photonics, ZeroFlap optics, and optical DSPs. They expect full-year revenue growth to exceed 85% year-over-year, with adjusted gross margins remaining consistent with FY2026 levels and adjusted net margins around 50%.

However, the company's integration of DustPhotonics brings execution risk as revenue growth now hinges on the timely ramp-up of new products like optical DSPs and silicon photonics. Any delays in these schedules could dampen the anticipated second-half inflection. Credo remains heavily contingent on a limited number of large customers, making its results susceptible to a substantial decline from any key buyer.

Furthermore, the intensifying competition from larger, more capital-rich rivals such as Broadcom, Coherent, and Marvell may impact pricing and market share. The increasing demand for optical interconnects, coupled with the potential negative impact of reduced AI capital expenditure on its growth trajectory, exposes Credo to structural cyclicality within the semiconductor industry.