Credo Technology Group (CRDO 4.62%) has had a rough couple of weeks. Shares dropped nearly 12% in just five market days as of Dec. 17, and the data networking expert's stock is down 28% in two weeks.
But zoom out a bit, and the picture looks very different. Credo's stock is still up 103% year to date and has gained 839% over the past three years -- nearly matching Nvidia's (NVDA 3.81%) legendary run in almost exactly the first three years of ChatGPT and generative artificial intelligence (AI). That's some legendary company at these lofty heights.
Is Credo's dip a buying opportunity, or perhaps the start of a long-lasting retreat? Let's take a look.
NASDAQ: CRDO
Key Data Points
Why Credo's stock dropped
There's no company-specific bombshell behind this pullback. Credo didn't miss earnings, lose a customer, or bungle a product launch. Instead, this looks like garden-variety volatility in a high-flying stock.
And make no mistakeL Credo is both high-flying and volatile. The stock's beta value is 2.7, which means the stock tends to move in the same direction as the S&P 500 (^GSPC 1.16%) market index -- but 2.7 times faster. Double-digit weekly swings aren't unusual for this stock; they're the price of admission to Credo's party.
When you own a stock that's up 860% in three years, you're going to see some gut-wrenching drops along the way. That's just how it works in Wall Street's high-octane growth stock lane.
The bull case remains intact
Nothing about Credo's fundamental story has changed recently.
The AI connectivity opportunity is massive. As GPU clusters scale from thousands to millions of chips, the data-transfer "plumbing" connecting them becomes mission-critical.
That's where Credo enters the conversation. Credo's active electrical cables (AECs) reportedly offer 1,000 times better reliability and approximately 50% lower power consumption than fiber-optic alternatives with similar data speeds. Those are game-changing advantages when deployed across a massive data center.
The company is executing. Revenue more than doubled last fiscal year, gross margins are expanding, and the company recently turned profitable.
The product roadmap is also compelling, as the company finds new use cases for its fundamental components. New offerings like ZeroFlap optical transceivers and OmniConnect gearboxes could triple or quadruple Credo's total addressable market by 2030.
And Credo's leadership is solid. Co-founders Lawrence Cheng and Job Lam are still running the show 17 years in, serving as CTO and COO, respectively. CEO Bill Brennan has been at the helm since 2013.
The risks haven't changed either
Credo's biggest vulnerability remains customer concentration. Its largest customer accounts for over 40% of revenue, and the entire business serves just a handful of hyperscaler tech giants. That's a real risk, and it's not going away anytime soon.
Furthermore, the stock isn't cheap by most metrics. Shares are changing hands at 120 times trailing earnings and 31 times sales. That may be a bargain next to market darlings like Palantir Technologies (PLTR 5.57%), but Credo's multiples are loftier than Nvidia's. You're paying a higher price for Credo's hypergrowth, and if that growth stumbles, the stock will take a hit.
Image source: Getty Images.
So is the dip worth buying?
Credo's long-term investing thesis is that the company is building the foundational connectivity layer for AI infrastructure. If you see great value in that idea, and you're willing to assume that Credo can stave off well-heeled challengers such as Marvell Technology (MRVL 2.82%) and Broadcom (AVGO 4.48%), then a 28% pullback in two weeks is just noise, not a value-altering signal.
This is an aggressive stock for investors with strong stomachs and long time horizons. If that's you, and you've been waiting for a better entry point, you should consider grabbing a few Credo shares while they're trading at a modest discount.
Just don't expect the volatility to stop. Credo is still a relatively small company, with just $796 million of trailing revenues, and it didn't start delivering consistent bottom-line profits until a year ago. The ride will be bumpy for years to come, but so far, Credo has been heading in the right direction.
