Credo Technology Group Holding Ltd [CRDO]

Tier-2 memo · 2026-07-29 · spot $192.28 · $35.9bn market cap · AI-datacentre interconnect (AECs, SerDes, optical)

The finding

The screen's +37.2pp valuation margin compares a required 56.3% five-year CAGR against a trailing 93.5% three-year CAGR. The trailing number is one extraordinary year (+205.7% in FY2026, off a $184m base) wearing a three-year label — the same window contains FY2024 at +4.8%. Measured against the rate Credo is currently compounding at, the margin is negative.

Management pre-announced this itself on 2026-02-09: "Credo expects sequential revenue growth in the mid-single digits." A sustained 7.5% sequential rate annualises to 33.8%.

What the accounting-quality work found

The growth is real. Cleaner than any precedent this framework was built on. FY2026 revenue tripled to $1,335.1m and the MD&A states that AEC volume at hyperscale data-centre customers contributed "over 99% of the increase in revenue." Days sales outstanding fell from 109.5 to 48.6. Operating cash flow was $464.3m against $472.3m of net income. The year's acquisitions were declared immaterial with no pro-forma required. No settlement revenue, no milestone lumpiness, no channel stuffing.

Three qualifications, all documented in filings: the customer-warrant contra revenue of $13.2m in FY2025 falling to zero in FY2026 flatters the acceleration by ~9pp; the IP-licence revenue split was disclosed for three years and then withdrawn (though it was only 3% of FY2025, so it cannot hide much); and inventory rose +20.6% sequentially in Q4 against +7.4% revenue growth, to 164 days.

Concentration, and the correction that already happened

Three end customers are 84% of FY2026 revenue (33% / 32% / 19%); one direct customer is 53% of receivables; the top ten are ~90%. Contracted backlog is $31.9m against $1,335m of revenue, and orders are cancellable on short notice without penalty.

In FY2023 one end customer was 55% of revenue. In FY2024 it was 26% — roughly $101m to $50m. Quarterly revenue fell 40.9% sequentially and the full year grew 4.8%. That is not a modelled downside case; it is Credo's own three-year-old history, and the same 50% cut applied to today's largest customer removes ~16% of revenue.

The screen input that was wrong

The management-revealed cross-check

The CEO's May-2026 performance share units carry six revenue hurdles from $2.5bn to $7.5bn over a five-year period ending 2031-06-30. The base implied path requires $8.6bn of FY2031 revenue — 15% above the maximum-payout tranche of management's own incentive ladder. On the screen's uncorrected parameters it requires $12.5bn, 66% above it. The board also attached a $489.40 stock-price hurdle to that top tranche, 2.55x spot — so the same document cuts both ways, and both cuts are in the valuation.

Criteria

Read the full analysis

• Research — mechanism, accounting quality, concentration, mention frequency, Criteria
• Valuation — implied-path test, sensitivities, PSU cross-check, 12-month target
• Trade Construction — chain pulled, vehicle assessment, invalidation triggers
• Catalyst Calendar — filed dates and clearly-marked estimates
• Model Notes — every source, every derivation, every limitation