Credo Technology has emerged to take the crown as TD Cowen’s top small- and midcap stock pick after a red-hot start to the year. The investment firm upgraded the tech company to buy from hold. Analyst Matthew Ramsay also upped his price target for the stock to $35 from $24, implying that Credo shares could rally 28% from Monday’s close. Credo, which specializes in ethernet connectivity services, has soared 49% in 2024. Ramsay thinks there’s even more upside ahead. CRDO YTD mountain Credo YTD chart “A key enabler of higher line-rate speeds, especially beyond 800G, we have been advocates of the technology and the engineers at Credo while maintaining a balanced view on the stock,” Ramsay wrote. “However, with the model likely to inflect beginning F2H25 (JanQ), we come off the sidelines — we upgrade to Buy, and name Credo our Best Smidcap Idea as revenue accelerates and broadens across programs and products.” The analyst pointed to a likely near-term inflection in the company’s top line. Specifically, he thinks that Credo’s revenue could inflect in the second half of its fiscal year as a number of its programs begin to ramp, including some GenAI buildouts. Credo’s key program ramps at Microsoft and Amazon within its active electrical cables should also play a role in pushing the company’s fundamentals higher. “Credo’s growth is likely to be primarily product-based (though IP remains a key part of its overall portfolio) and is likely to be driven first by its Active Electrical Cable (AEC) portfolio, then by its SERDES chiplet products, and finally by the company’s opportunity in optical DSPs,” Ramsey noted. Another catalyst comes as Credo begins to significantly diverse and broaden its customer base away from its anchor customer, Microsoft. Over time, this will reduce the risk of “whipsaw inventory-driven sales volatility” for Credo, the analyst added. The company has also begun to expand its product offerings as well. “Overall, we see the diversification of the company’s revenue base as a key de-risking of the model and should benefit the durability of revenues going forward,” Ramsey said.
