Michael Wiggins De Oliveira
Deep Value Returns, Equity Investing without Options or Leverage
Credo is a steal at about 70 times forward free cash flow given how fast cash generation is growing, supporting a raised target of $280 by the end of 2027. Revenue is expected to grow more than 80% year over year, and free cash flow reached about $178 million this quarter, up over 225%, with a credible path to roughly $600 million a year. It has no debt and expanding profitability. Any after-hours weakness misses the point; what matters is where the stock will be next year. x.comÂ
Credo should reach $210 by mid-2027, as the recent AI-infrastructure risk-off creates a long-term opportunity. It is debt-free, potentially on track for over $500 million of free cash flow in the next twelve months, and still growing revenue more than 50%. At about 64x forward free cash flow, a PEG of roughly 1x, the setup should not stay mispriced once the market stabilizes. x.comÂ
Credo's near-total share of AI data-center cables and unchanged estimates make its lower multiple look like a fear-driven opportunity. Its stock went from 27x to 20x forward earnings while the supply chain building those systems guided 2027 revenue to double. Buyers this week will probably be very happy a year from now. x.comÂ
Credo's revenue is projected to double by 2029, which makes the stock hard not to be bullish on. x.comÂ
Credo needs a slightly lower price before adding. FY28 EPS of about $10, a 70% growth rate from today, would support a $350 stock at 35x, a 0.5x PEG. x.comÂ
Credo's repeatedly conservative guidance and quarterly beats suggest analysts understate next year's EBIT. It trades at 15x their estimate, but likely 12-13x next year's EBIT if management's guidance holds. Management has executed as well as almost any company in recent years, and the multiple could easily end up closer to 10x than 15x. x.comÂ
Credo's valuation is not absurd relative to its growth. The latest selloff is another overreaction. x.com x.comÂ
Credo's results were underwhelming for a company that added $32 billion in market value in a few months, and shorts may punish the stock. Per @WisemanCap, fiscal Q4 EPS of $1.16 beat the $1.02 estimate and revenue of $437 million was just above estimates, while Q1 fiscal 2027 revenue guidance of $465-476 million was roughly in line with the $464.7 million consensus. x.com x.comÂ
Credo was an easy buy because its share price was ridiculously low against estimated revenues, as a quick look at its last quarterly report showed despite the hate. @KawzInvests adds that the DustPhotonics deal removes the bear case that a shift to optical breaks Credo, giving it a silicon photonics portfolio from 400G to 1.6T with a 3.2T roadmap. x.comÂ
SpaceX's AI buildout could add substantially to Credo's revenue. If SpaceX really spends $400B on capex next year, that could add $2B for Credo. In that scenario, Credo would probably do at least $5B in FY2028 revenue; at roughly 50% net margins, EPS would be about $14 versus the sell side's $9, putting shares near 12x FY2028 EPS with EPS growing at a 130% CAGR across FY2027 and FY2028. x.com x.comÂ
Credo was overpriced even with great earnings, and it is still a little pricey at $190. Per @wallstengine, revenue rose 114.7% to $479.0M, beating estimates, and Q2 guidance of $525M-$535M also topped expectations, yet the stock is down $112 from its high of a few months ago. Valuation matters, and $150-$170 would be a decent entry point. x.comÂ
Credo looks cheap against its earnings at about 17.5x next year's EPS, versus the roughly 38x chipmakers usually get. At 38x the $9.63 forecast EPS, give or take 12%, fair value is about $322-410, leaving the stock near $168 about 48% below the low end. The view leans heavily on forecasts, as forward EPS is 284% above trailing, and it is a valuation-levels read rather than fundamental work. x.comÂ
