This AI Stock Is Flying Under the Radar. Earnings Just Showed Huge Revenue Growth.

Credo Technology is a leader in AI data-enter connectivity. (Dreamstime)

Credo reported better-than-expected earnings results on Wednesday afternoon. Its shares are surging following the release.

The company reported fiscal first-quarter adjusted earnings per share of 52 cents, compared to Wall Street’s consensus estimate of 36 cents, according to FactSet. Revenue came in at $223.1 million, or up 274% year over year, which was above analysts’ expectations of $190.6 million.

Credo’s outlook was also strong. For the current quarter, it forecast a sales range of $235 million at the midpoint versus the $201.9 million consensus analyst estimate.

“The Company’s growth has been driven by deep, strategic partnerships with hyperscalers and key customers,” Credo CEO Bill Brennan said. “Given increasing market demand for reliable and power-efficient connectivity solutions, we expect continued revenue growth and diversification in terms of customers, protocols, and applications.”

In early trading Thursday, Credo shares rose by 11% to $138.49.

In an interview with Barron’s after the earnings report, Brennan said Credo is developing system-level optical connectivity solutions that will focus on providing customers better reliability and better power efficiency. He also sees “tremendous opportunity” to win future business inside the six major U.S. hyperscalers.

We “can’t ask for much more than that,” TD Cowen analyst Joshua Buchalter wrote in a note to clients, referring to Credo’s results. “Credo stands to benefit from the exponential growth of data traffic inside the data center … we believe we’re in the early innings of the Credo growth story.”

Credo is a leader in high-speed data connections used in artificial-intelligence data centers. The company offers a variety of products, including optical devices and data networking chips, but its active electrical cables, or AECs, are the most exciting part of its business.

Credo invented the AECs, copper-based cables used to attach AI servers to networking switches. They are more reliable and consume less power than optical cables and can be used over longer distances than traditional passive copper cables can. According to research firm 650 Group, Credo has 73% of the AEC market as of the last reported quarter.

AECs are in the sweet spot right now as the market moves to rack-based servers that have a higher density of graphics processing units. More AECs will be needed to connect the larger AI server clusters. According to Needham, Amazon, Microsoft, and Elon Musk’s xAI are among Credo’s top customers.

Credo shares are up about 86% this year as of Wednesday’s close, compared to the 11% gain for the Nasdaq Composite index.

Write to Tae Kim at tae.kim@barrons.com