Why Credo Technology is the Must-Watch AI “Picks-and-Shovels” Stock | PRIMENEWSNOW

Credo Technology (CRDO 2.70%) continues to impress its investors. This year, the stock has reached several new peaks, with the latest surge occurring after the company reported exceptional results for the second quarter of its 2026 fiscal year.

With a remarkable increase of over 180% this year, Credo exemplifies the lucrative potential for investors as artificial intelligence (AI) remains a dominant force in the stock market.

Understanding Credo Technology’s Market Position

Headquartered in San Jose, California, Credo specializes in delivering high-performance connectivity solutions for data centers, 5G networks, AI, and high-performance computing sectors.

Initially valued at under $50 per share until late 2024, the stock gained traction as the market recognized the vast potential in data center and AI expansion. According to Grand View Research, the AI market is projected to grow from $279 billion to $3.5 trillion by 2033, while the data center market is expected to increase from $347.6 billion to $652 billion by 2030. These trends provide significant growth opportunities for Credo, driving its stock price upward.

Credo offers several innovative products tailored for AI workloads. For example, its Active Electrical Cables (AECs) outperform traditional copper cables by efficiently connecting clusters of graphics processing units (GPUs) and central processing units (CPUs) in data centers. AECs incorporate signal processors to enhance data transfer speed and efficiency.

The company’s OmniConnect architecture addresses memory bottlenecks and enhances AI inference scalability, while its ZeroFlap optical transceivers ensure network stability and efficiency for AI applications.

In the second quarter of fiscal 2026, ending November 1, 2025, Credo reported revenue of $268 million, marking a 272% increase from the previous year and a 20.2% rise from the first quarter. The company achieved a gross margin of 67.5%, with operating expenses totaling $102.4 million and a net income of $86.2 million. Earnings per share stood at $0.44, and the cash balance was $813.6 million at the quarter’s end.

“These are the most robust quarterly results in Credo’s history, reflecting the ongoing expansion of the world’s largest AI training and inference clusters,” stated CEO Bill Brennan.

For the third quarter, management anticipates revenue between $335 million and $345 million, representing a 151% increase from the previous year. Gross margins are expected to range from 63.8% to 65.8%.

Evaluating Credo’s Valuation

With such impressive gains, Credo’s valuation is understandably high. The stock’s price-to-earnings (P/E) ratio stands at 276, with a forward P/E of 90. While not as extreme as Palantir Technologies, known for its high valuation, it surpasses competitors like Vertiv Holdings, which also provides data center infrastructure.

Whether this valuation is justified depends on individual investors’ risk tolerance. Analysts at MarketWatch remain optimistic, with a majority issuing buy ratings and a median price target of $230, indicating a 21% potential increase from current levels.

Following Credo’s strong earnings report, Mizuho analysts raised their price target to $225, while Bank of America increased theirs from $165 to $240. Read more here.

Credo: A Strategic Player in AI Infrastructure

While AI giants like Nvidia, Broadcom, Advanced Micro Devices, and Taiwan Semiconductor often dominate headlines, their advanced chips and foundry services rely on effective communication between chip clusters.

This is where Credo steps in, capitalizing on the growing demand for data centers worldwide. Keep an eye on this stock and consider buying during market dips.

Bank of America is an advertising partner of Motley Fool Money. Patrick Sanders holds positions in Nvidia and Palantir Technologies. The Motley Fool has positions in and recommends Advanced Micro Devices, Nvidia, Palantir Technologies, and Taiwan Semiconductor Manufacturing. The Motley Fool also recommends Broadcom.