By Britney Nguyen
Investors have been worried about the threat of co-packaged optics on Credo's active electrical cables business
Credo blew expectations out of the water with its preliminary results for the January quarter.
Credo Technology already gave &#34;blowout&#34; guidance for the January quarter back in December, according to TD Cowen analyst Sean O'Loughlin. And now the company's unexpected preannouncement of even stronger results has made a new statement to Wall Street.
Credo (CRDO), which makes connectivity components for data-centers, said late Monday that it expects to report revenue of between $404 million and $408 million for the third fiscal quarter of 2026, which ended on Jan. 31. That's almost 20% higher at the midpoint than the company's previous guidance for between $335 million and $345 million, and about 17% above the previous FactSet consensus of $346 million.
Shares of Credo were up 11% in morning trading Tuesday after the preannouncement helped quell fears about the competitiveness of the company's technology. The performance reflects strong adoption of Credo's specialized copper active electrical cables, according to Cowen's O'Loughlin.
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Strength there is &#34;a sharp contrast to the CPO-related doomsday narrative that has prevailed since December,&#34; O'Loughlin said in a Monday note, referring to fears about co-packaged optics, an emerging rival technology for packaging chips with optical components like lasers and engines together into a single unit. Compared with AECs, the CPO approach consumes less power because the copper cables are not as necessary.
While Credo's preannounced revenue and guidance did not exactly settle the debate over AECs versus CPO, O'Loughlin said the update from the company &#34;certainly scores some points in Credo's favor.&#34;
Even with Tuesday's rally, Credo's stock has underperformed the PHLX Semiconductor Index SOX since peaking after its latest earnings report in December. O'Loughlin attributed that to fears among investors &#34;that CPO adoption is imminent and, more importantly, represents a death knell for copper-based interconnects such as AECs&#34; - a thesis he said he doesn't agree with.
Additionally, O'Loughlin said the lack of confidence in Credo shows investors are not giving it enough credit for other growth areas in its business, including its ZeroFlap optical transceivers, which are used to manage frequent and disruptive disconnections in data centers, and its active LED cables, which are data-center interconnects.
Credo's ZeroFlap and ALC products are still in the early stages, and O'Loughlin said that could explain why some investors are hesitant. Still, he thinks &#34;the market has overly discounted any chance of Credo's success&#34; in creating more revenue opportunities beyond its AECs, he said.
O'Loughlin said most of the growth in the company's third quarter was likely from AEC deployments at xAI and Meta Platforms (META) - the latter of which he thinks is the fourth hyperscale customer Credo is ramping up its technology with.
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Going into the April quarter, Mizuho analyst Vijay Rakesh sees upside from Credo's deployments with Amazon Web Services (AMZN), Microsoft's (MSFT) Azure and xAI, as well as an acceleration in its ramps with Meta and Oracle (ORCL).
Rakesh called xAI &#34;a key customer&#34; for Credo in his Monday note, due to the company's close to 100% share of xAI's networking components and exposure to Tesla (TSLA).
-Britney Nguyen
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(END) Dow Jones Newswires
02-10-26 1103ET

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Credo Technology's stock surged 11% following a strong preannouncement of revenue expectations for Q3 2026, projecting $404-$408 million, significantly above previous guidance. This positive outlook alleviated investor concerns regarding competition from co-packaged optics technology. Analyst Sean O'Loughlin noted that Credo's performance reflects robust adoption of its copper active electrical cables, contrasting fears about CPO technology. Despite the rally, Credo's stock has underperformed the semiconductor index, with analysts suggesting that the market may be undervaluing its growth potential in other areas, including optical transceivers and active LED cables.

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