Credo Technology Group Holding Ltd. CRDO is seeing rapid expansion in its hyperscaler footprint, a key driver behind the strong AEC growth trajectory.
CRDO's hyperscaler expansion fuels surging AEC growth, but heavy reliance on a few customers raises risks as AI-driven demand accelerates.
Credo Technology Group Holding Ltd. CRDO is seeing rapid expansion in its hyperscaler footprint, a key driver behind the strong AEC growth trajectory.
Revenues for the fiscal third quarter jumped 51.9% sequentially and 201.5% year over year to $407 million. The company reported “substantial year-over-year growth” across four domestic hyperscalers. Three hyperscalers each contributed more than 10% of total revenues, reflecting strong adoption of Credo’s high-reliability AEC solutions. Credo has also secured a fifth hyperscaler customer, further strengthening its position within the global cloud ecosystem.
AECs are becoming standard for intra and rack-to-rack connections up to 7 meters. The explosive adoption of AECs is mainly due to these cables offering up to 1,000 times more reliability with 50% lower power consumption than optical alternatives, added CRDO. Management added that the industry was still in the early stages of AEC adoption, implying a long runway for growth as AI infrastructure deployments accelerate.
Though CRDO is expanding its footprint, it is still dependent on a small set of customers, which can amplify quarter-to-quarter swings. The top three customers represented 39%, 32% and 17% of revenues in the third quarter of fiscal 2026. Management also expects three to four customers to exceed 10% of revenues in the upcoming quarters and fiscal year. This pattern can magnify the downside if any large program pauses or rephases deployments.
With strong demand trends and ongoing customer additions, Credo’s expanding hyperscaler reach presents both a strength and a factor that investors will continue to monitor closely. Beyond traditional hyperscalers, Credo is also seeing increasing demand from Neocloud providers.
Broadcom $AVGO AVGO sees massive opportunities in the AI space, as its hyperscaler customers have begun developing their own custom accelerators or XPUs. In the last reported quarter, AI semiconductor revenues surged 106% year over year, driving the overall semiconductor revenues to $12.5 billion, up 52% year over year. AVGO’s custom accelerator business was up 140% year over year, with the management noting that the expansion of custom AI accelerators across its leading five customers is “progressing very well”. Broadcom expects continued growth in 2026 from Google $GOOGL as demand for seventh-generation Ironwood TPU remains strong.
The company expects its sixth customer, OpenAI, to commence volume deployments of first-generation XPU in 2027, strengthening the hyperscaler ecosystem and long-term visibility.
Astera Labs ALAB is also benefiting from increased spending on AI and cloud infrastructure by top U.S. hyperscalers. Management expects continued growth for Scorpio P-Series at its lead customers. It expects to begin shipments to at least two additional key hyperscalers on their next-generation AI platforms. Higher deployment of custom accelerators at hyperscalers is driving demand for Astera Labs’ Aries retimer solution. With Aries 6, the company has a first-mover advantage as these products are the industry’s first and only PCIe 6 retimers shipping in high volume.
On the last earnings call, management noted its expanded product portfolio now includes custom connectivity solutions. These will help in tackling next-generation AI infrastructure featuring heterogeneous compute resources.
Shares of CRDO have lost 7.9% in the past month, while the Electronics-Semiconductors industry is down 3.6%.
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In terms of the forward 12-month Price/Sales ratio, CRDO is trading at 9.96, higher than the Electronic-Semiconductors industry’s multiple of 7.14.
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The Zacks Consensus Estimate for CRDO’s earnings for fiscal 2026 has been revised upwards over the past 60 days.
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CRDO currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
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