Credo Technology Group ( CRDO ) is the IBD stock of the day as the stock bounced off its 21-day exponential moving average.
A provider of high-speed connectivity products for Internet data centers, Credo in January launched one of this year’s rare technology initial public offerings. Credo products help accelerate communication between racks of computer servers and storage devices packed into data centers.
Credo’s products are also embedded in 5G wireless infrastructure equipment. Its biggest customers are large technology companies that operate so-called “hyperscale” data centers. They are designed to increase computing power as demand increases.
Stifel began coverage of Credo in February.
In a note to clients, Stifel analyst Tore Svanberg said: “Credo is at the beginning of a large and fast-growing market opportunity, driven by multiple product ramps, including its SerDes (serializer/deserializer ‘chiplets’), optical digital signal processors, devices on the physical layer of line cards and active “Hi-Wire” electrical cables.
Copper connecting cables Engine of growth
Credo’s copper patch cables operate at 100 gigabytes per second, 200G, 400G and 800G speeds.
Active cabling is aimed at deploying next-generation server platforms Advanced Micro Devices (AMD) and Intel (INTC).
Craig-Hallum analyst Richard Shannon says Microsoft (MSFT) is Credo’s initial customer for active power cables.
“Recent market research indicates that (active electrical cable) adoption at the server level could reach 75% in a few years, suggesting strong growth potential for many years,” Shannon said in his note to clients.
CRDO Stock: Next Generation Data Center Bandwidth
Mizuho Securities expects Credo to capture market share.
“Credo cables result in 50% to 70% lower switch/cable power consumption, 50% lower silicon footprint, and compact cabling with a small bend radius, enabling greater rack density,” the analyst said Mizuho’s Vijay Rakesh in a note.
In fiscal 2023, Credo is targeting revenue of $200 million, up 88%.
In a September report, Goldman Sachs analyst Toshiya Hari said: “Despite an increasingly uncertain macroeconomic backdrop and a more challenging cloud capex outlook, we continue to believe that Credo’s strategic role in providing next-generation bandwidth needs of cost and power-efficient envelope as well as the company’s idiosyncratic design wins will support a steady growth trajectory.”
CRDO earnings due Wednesday
CRDO’s fiscal second-quarter earnings are expected on Nov. 30. Investors may want to be cautious ahead of the earnings report. A winning strategy would use call options.
From a technical point of view, the CRDO stock forms a cup-handle base. Credo shares are trading about 9% below an entry point of 15.51.
In addition, Credo stock bounced off its 21-day exponential moving average. This chart line is an alternative to the 10-day and 50-day moving averages.
CRDO shares are up about 40% in 2022, outperforming the S&P 500, which is down nearly 17%. On the stock market today, CRDO shares fell 2.2% to 09/14.
Two veterans from Marvell Technology (MRVL), Lawrence Cheng and Job Lam, founded the San Jose, California-based company in 2008. Bill Brennan, president and CEO, joined the company in 2014.
Credo’s IPO raises $200 million
In January, Credo’s IPO raised $200 million with shares initially valued at 10. The company reduced its offering to 20 million from 25 million shares.
Still, tech IPOs have been rare in 2022. Amid volatility on the Nasdaq composite, Credo shares hit a low of 8.61 on May 12.
CRDO stock belongs to IBD’s Internet Networking Solutions industry group, which ranks just 171 out of 197 groups.
Meanwhile, CRDO’s stock has a relative strength rating of 90 out of a possible 99, according to IBD Stock Checkup. The best stocks usually have an RS rating of 80 or better.
The company has an IBD Composite Rating of 80. IBD’s Composite Rating combines five separate proprietary ratings into one easy-to-use rating. The best growth stocks have a composite rating of 90 or better.
CRDO Shares: Institutional Ownership
CRDO shares have an Accumulation/Distribution Rating of B. This rating analyzes a stock’s price and volume changes over the past 13 trading weeks.
The rating, on a scale of A+ to E, measures institutional buying and selling of shares. A+ means heavy institutional buying; E stands for hard sell. Think of Class C as neutral.
Credo uses contract manufacturers in Vietnam and Malaysia. Rivals include Marvell and Broadcom (AVGO).
Follow Reinhardt Krause on Twitter @reinhardtk_tech for updates on 5G wireless, artificial intelligence, cybersecurity and cloud computing.
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