Issue #42

Explosive YoY revenue growth huge new cloud orders.

The AI boom isn’t just about GPU shipments and trillion-parameter models — it’s about the invisible high-speed highways that move data between chips, racks, and hyperscale clusters. Behind every model training run, every data center expansion, and every cloud upgrade is a race to build faster, denser, and more energy-efficient connectivity.

👉 One company is selling the ultra-high-speed electrical links and custom silicon that hyperscalers rely on to feed their AI clusters — posting triple-digit revenue growth and explosive margin expansion.
👉 The other is powering the long-haul and intra-data-center networks that stitch AI infrastructure together globally — with record cloud orders and next-gen optical systems scaling at breakneck speed.
👉 Both are dominant players in connectivity, beating earnings expectations, and riding the biggest infrastructure upgrade cycle in 20 years — yet remain far less talked about than the AI giants they quietly enable.

In this edition, we break down two mission-critical networking innovators at the heart of the AI super-cycle — and why investors are watching them closely as we head deeper into 2026.

Credo Technology Group (NASDAQ: CRDO)

Credo Technology Group is a leading innovator in the field of high-speed connectivity solutions, providing essential components that power the next generation of Artificial Intelligence (AI) data centers, cloud computing, and hyperscale networks. As the backbone of digital infrastructure continues its rapid expansion, Credo's technology is critical for enabling the massive bandwidth and energy efficiency required by modern AI and cloud workloads.

Business Model and Revenue Streams 📦

Credo's business model is centered on the design and development of proprietary, high-performance semiconductor solutions that solve system-level connectivity bottlenecks. The company's core technology lies in Serializer/Deserializer (SerDes) and Digital Signal Processor (DSP) expertise, which allows for extremely fast and reliable data transmission.

Its revenue is primarily generated from two main segments:

• Product Sales (Dominant Stream): This segment is the main growth driver and includes the sale of integrated circuits (ICs) and Active Electrical Cables (AECs). AECs are a major revenue driver, providing energy-efficient and scalable alternatives to traditional copper and optical connections within data centers. The massive acceleration in AI deployments has made high-speed, low-power interconnects like Credo's solutions absolutely essential.
• Intellectual Property (IP) Licensing: Revenue is also generated from licensing its foundational SerDes IP to other semiconductor companies. This segment provides a high-margin, sticky revenue stream, though it is a smaller portion of the total revenue compared to product sales.

Macroeconomic Impact Analysis

Credo is currently at a major inflection point where its growth is primarily dictated by the massive, secular tailwind of AI infrastructure build-out. This trend is so strong that it largely outweighs typical macroeconomic headwinds.

• Positive Impact (AI Boom): The demand for AI training and inference clusters from hyperscale cloud providers (Credo’s largest customers) is driving unprecedented orders for its high-speed connectivity products. This strong demand has resulted in triple-digit annual revenue growth.
• Key Risk (Customer Concentration): The most significant risk is not broad macroeconomic policy but customer concentration. A very large portion of Credo's revenue (e.g., 67% of FY2025 revenue from a single customer) comes from a handful of large hyperscale clients. Any change in spending or purchasing patterns by one of these key customers could materially and instantly impact Credo's financial results.
• Interest Rates and Capital: The company maintains a remarkably conservative capital structure with minimal debt and a strong cash position, making it less sensitive to rising interest rates compared to highly leveraged growth companies. Its primary focus on internal R&D and strategic partnerships (like its warrant issuance to Amazon) rather than heavy debt-financing for operations is a financial strength in a volatile market.

Recent Performance and Corporate Developments 📈

Credo has delivered a series of strong financial results, consistently beating analyst expectations and signaling its transformation into a profitable AI play.

Recent Financial Highlights (Q2 Fiscal Year 2026) 💰

Credo reported its strongest quarterly results in history, demonstrating a significant inflection point in its financial trajectory:

• Total Revenue: $268.0M, up +272.1% YoY, significantly beating consensus.
• Non-GAAP EPS: $0.67, beating consensus (Previous was $0.07).
• Non-GAAP Gross Margin: 67.7%, up +410 bps, indicating strong pricing power.
• Cash Position: $813.6M, reflecting a strong and improving balance sheet.

The company has surpassed both revenue and EPS consensus estimates for the last four consecutive quarters. The massive growth is largely attributed to the rapid expansion of the world's largest AI training and inference clusters, driving demand for its AEC and IC franchises.

Strategic Initiatives and Mergers 🤝

Credo has not had any recent major mergers or acquisitions, focusing instead on strategic product development and IP agreements:

• Product Ramps: Management is guiding for continued strong growth based on upcoming ramps of new products, including ZeroFlap Optics, Active Logic Cables (ALCs), and OmniConnect gearbox solutions.
• IP Licensing: Credo recently announced a patent license agreement with The Siemon Company covering its patented Active Electrical Cable technology, further monetizing its core IP portfolio.
• Leadership Development: CEO Bill Brennan's appointment to the Axiado Board of Directors highlights Credo's growing influence and expertise in cloud infrastructure and AI data center security.

Path to Profitability and Fair Value 🎯

Credo is not on a path to profitability—it has already achieved significant net profitability in fiscal year 2025 (FY2025), a major turnaround from previous loss-making growth phases.

• Sustained Profitability Strategy: The path to sustained and growing profitability is driven by two factors:

1. Operating Leverage: Revenue growth (projected 170% YoY for FY2026) is expected to grow at more than twice the rate of operating expenses, driving significant operating leverage.
2. High Gross Margin: Maintaining its robust non-GAAP gross margin (currently $\sim67.7\%$, long-term target $63\%-65\%$) ensures that a large percentage of incremental revenue flows to the bottom line.

• Fair Value Assessment: Given the stock's remarkable recent performance (up over 170% in the last year), its valuation metrics are high.
• P/E Ratio (TTM): The Trailing Twelve Months (TTM) P/E ratio is exceptionally high (e.g., over 200), which is typical for a high-growth company that has recently achieved profitability and is valued heavily on future potential.
• Analyst View: Many analysts consider the stock's current price to be supported by its explosive growth trajectory and market positioning, arguing that the high valuation ratios are justified by its strong earnings growth forecast (forecast to grow $\sim28\%$ per year). However, some valuation models suggest the stock is trading above its intrinsic fair value, indicating a premium for its AI-centric growth.

Analyst Estimates and Ratings 📊

The analyst community is overwhelmingly bullish on Credo, especially following its blowout Q2 earnings report.

• Consensus Rating: The consensus rating from analysts is a "Strong Buy," with 15 firms polled in recent months all recommending a "Buy" or "Strong Buy" and zero "Hold" or "Sell" ratings.
• Recent Ratings/Upgrades (Last 30 Days): Following the Q2 report, several firms raised their price targets and reiterated their Buy ratings. For example, Roth/MKM raised its price target to $250 from $170, citing a broadening customer base and improved growth visibility. Mizuho also issued an "Outperform" rating and raised its target to $225.
• Price Target: The average 12-month price target is approximately $208.93, with a high estimate reaching $250.00.

Investor-Focused Takeaway: Is CRDO Right for Your Portfolio?

Credo Technology is a compelling pure-play investment on the acceleration of the AI data center boom. The company has successfully navigated the challenging transition to profitability and is capitalizing on the insatiable demand from hyperscale cloud providers for high-speed, energy-efficient connectivity.

What to Watch in the Near Term: 📈

• New Customer Ramps: Pay close attention to the announced ramp-up of new hyperscale customers (the company recently added one more $>10\%$ customer) to confirm continued customer diversification and reduced concentration risk.
• New Product Adoption: Monitor the success and revenue contribution of newer products like ZeroFlap Optics and OmniConnect, which are key to sustaining long-term growth beyond its core AEC business.
• Sustaining Margins: Watch for the company's ability to maintain its high gross margins as it continues to rapidly scale production.

Recommendation:

Credo (CRDO) is viewed as a high-conviction Buy for investors looking for exposure to the foundational technology enabling the AI revolution. The stock carries high valuation multiples and significant customer concentration risk, but this is balanced by extraordinary revenue growth, strong profitability, a clean balance sheet, and unanimous analyst support.

Ciena (NYSE: CIEN)

Ciena is a global leader in networking systems, services, and software, specializing in high-capacity, coherent optical transport and packet networking technology. The company provides the essential infrastructure that underpins the massive bandwidth demands of telecommunications service providers, cable operators, large enterprises, and, increasingly, hyperscale cloud providers building AI and data center networks.

Business Model and Revenue Streams 📦

Ciena’s business model is built on providing end-to-end, integrated networking solutions that leverage its deep expertise in optical technology. The model generates revenue primarily across three segments:

• Networking Platforms (Products): This is the largest revenue stream, derived from the sale of advanced hardware, including packet-optical transport and switching equipment. A key component is Ciena's proprietary WaveLogic coherent optical technology (e.g., WaveLogic 6), which enables the ultra-high speeds and efficiency required for modern data transmission. The AI and cloud boom is driving intense demand for its high-capacity solutions for Data Center Interconnect (DCI).
• Platform Software and Services: This includes recurring revenue from the company's Blue Planet software suite. Blue Planet provides multi-domain service orchestration, inventory, and network automation software, allowing customers to simplify network management and drive greater operational efficiency. This high-margin segment is critical for Ciena's long-term profitability and differentiation.
• Global Services: Revenue from professional services, including consulting, network design, deployment, integration, and ongoing maintenance and support.

Macroeconomic and Policy Impact Analysis

Ciena’s business is experiencing a major secular shift driven by Cloud and AI investment that is currently overriding broader economic cyclicality, though it is not immune to all policy impacts.

• AI and Cloud Tailwinds (Strong Positive): The accelerating demand for high-speed, low-latency connectivity to support AI workloads and the expansion of data centers is Ciena's primary growth engine. Cloud provider orders are projected to double in fiscal 2025, with direct cloud provider revenue already a significant portion of its total sales (e.g., 38% of Q2 FY2025 revenue).
• Telecom Spending (Mixed/Recovering): Historically, Ciena was sensitive to the capital expenditure cycles of Tier 1 telecom service providers. Following a period of underinvestment, service provider network investments are showing signs of an improving trend line, shifting from a prior headwind to a more durable and sustainable source of growth.
• Geopolitical and Trade Policies (Risk): The company is exposed to global supply chain constraints and geopolitical risks, including U.S. tariffs. Ciena actively employs mitigation strategies to minimize the financial impact of trade policies on its cost of goods sold.

Recent Performance and Corporate Developments 📈

Ciena has demonstrated strong financial execution, successfully transitioning from a period of supply chain recovery to one of aggressive growth fueled by its AI-centric customer base.

Recent Financial Highlights (Q2 Fiscal Year 2025) 💰

Ciena's performance in Q2 demonstrated an acceleration in demand and a return to GAAP profitability.

• Total Revenue: $1.13B, up +24.1% YoY, driven by cloud/AI demand.
• GAAP Net Income: $9.0M (profitable), a significant turnaround from last year's loss.
• Non-GAAP EPS: $0.42, up +55.6% YoY.
• Cloud Provider Revenue: Over $400M, up +85%, a record segment quarter.

The company has seen orders significantly outpace revenue, building a strong backlog and resulting in an upward revision of its fiscal 2025 revenue growth forecast to approximately $14\%$.

Strategic Initiatives and Mergers 🤝

Ciena’s recent corporate activity is highly focused on expanding its technology portfolio to meet AI-driven, high-speed connectivity demands:

• Acquisition of Nubis Communications (Recent): In September 2025, Ciena announced the intent to acquire Nubis Communications to expand its "inside the data center" strategy. Nubis is focused on high-density silicon photonics for ultra-high-speed interconnects, directly addressing growing AI workloads and further enabling Ciena's push into intra-data center connectivity.
• Key Product Launches: The company is rapidly deploying its latest-generation optical technology, WaveLogic 6 Extreme (WL6e), and is sampling its 1.6T Coherent-Lite solution, cementing its leadership in the coherent optics market.
• Customer Wins: Ciena continues to secure major deployment agreements globally, including recent announcements with global content providers, Trans Americas Fiber System, and EXA Infrastructure, primarily driven by WaveLogic technology.

Path to Profitability and Fair Value 🎯

Ciena has a long history of being profitable, although its recent profitability metrics were temporarily impacted by supply chain constraints and higher component costs. The company has now re-achieved GAAP profitability and is focused on driving higher margins.

• Sustained Profitability Strategy: The strategy is centered on driving revenue mix toward high-growth, high-margin areas:
  • Cloud & AI Penetration: Leveraging the rapid growth in cloud DCI to sell its premium, cutting-edge optical and networking products.
  • Software Scale: Growing the recurring, high-margin Blue Planet software and services revenue to increase operating leverage.
  • Cost Control: Continued mitigation of supply chain and tariff costs.
• Fair Value Assessment: Ciena's stock has surged significantly in the last 52 weeks, leading to high valuation multiples (e.g., Trailing P/E of over 190 and Forward P/E of around 50).
  • The Bull Case: Investors are willing to pay a premium for the company's clear leadership in the AI-driven optical networking space. The high valuation is viewed as justified by the explosive order growth and the secular trend of network upgrades.
  • The Bear/Neutral Case: Despite the strong performance, the current stock price of $\sim\$200$ is significantly above the average analyst 12-month price target, suggesting the stock may be trading at a premium to its consensus fair value. The high P/E ratio implies that investors expect substantial and sustained earnings growth to justify the current price.

Analyst Estimates and Ratings 📊

Analyst sentiment is highly positive, reflecting the company's critical role in the AI build-out.

• Consensus Rating: The consensus rating from analysts is a "Strong Buy" or "Buy," with roughly $70\%$ of analysts recommending a Buy or Strong Buy.
• Recent Ratings/Upgrades (Last 30 Days): Firms like Citi and others have recently reiterated or raised their price targets, though some are still cautious about the gap between the stock price and target. For instance, Citi recently maintained a Buy rating with a target of $\text{\$230}$.
• Price Target: The average 12-month price target is approximately $152.63, though there is a wide range, with a high target of $230.00. The average target suggests a potential downside from the current price, indicating that the market has run ahead of the consensus target set by many analysts.

Investor-Focused Takeaway: Is CIEN Right for Your Portfolio?

Ciena is a core enabler of the high-speed networks required by the AI and Cloud revolution. Its strong Q2 performance and massive order backlog confirm the company is capitalizing on this secular trend.

What to Watch in the Near Term: 📈

• Cloud Customer Concentration: Monitor the consistency of orders from hyperscale cloud providers, as this segment is currently the most dynamic growth driver.
• Blue Planet Software Growth: The rate of growth in the high-margin software segment is key to increasing overall profitability and operating leverage.
• Valuation vs. Target: Given the gap between the current stock price and the average analyst price target, investors should watch for continued positive revisions to analyst estimates and earnings surprises that validate the premium valuation.

Recommendation:

Ciena (CIEN) is a Strong Buy for investors who want exposure to the critical infrastructure layer of the AI and Cloud ecosystem. While the stock's recent price appreciation suggests it is fully valued, its technological leadership (WaveLogic 6) and exposure to the biggest secular spending trend (AI/Cloud DCI) offer a strong case for long-term growth. However, be mindful of its high P/E ratio and the downside suggested by the average consensus price target.

Final Take: Backbone of the AI Boom — Why CRDO and CIEN Deserve a Closer Look

As AI workloads multiply and cloud networks scale at breakneck speed, connectivity is becoming the real bottleneck — and the next trillion-dollar opportunity. Behind the scenes, two infrastructure champions are quietly powering this transformation:

🟦 Credo Technology (CRDO) – The Silent Star of AI Cluster Expansion
✔ +272% YoY revenue growth
✔ High-margin AECs fueling hyperscaler adoption
✔ $250+ analyst price targets
➤ Best for: Investors seeking a pure-play AI infrastructure breakout with margin strength, customer expansion, and proven execution.

🟪 Ciena (CIEN) – Optical Muscle for the AI and Cloud Revolution
✔ 85% YoY cloud order growth
✔ Strategic move into intra-data-center silicon photonics
✔ WaveLogic 6 is setting the industry standard
➤ Best for: Investors looking for a global leader in long-haul, ultra-high-speed connectivity riding the largest data upgrade cycle in decades.

Investor Insight:

🔗 Want explosive growth and hyperscaler exposure with margin leverage? → CRDO
​ 🌐 Want core infrastructure exposure to global AI and cloud spending? → CIEN

Connect now or miss the next leg up.

​
Happy Trading
​— Team Premium Stock Alerts