Credo's AI Momentum Confirmed, But DeepValue's Concentration Warnings Remain Unchanged

What happened

Credo Technology reported record Q2 fiscal 2026 results, with revenue surging 272% year-over-year and non-GAAP EPS up 857%, driven by robust demand for its Active Electrical Cables (AEC) in AI data centers. A recent Seeking Alpha article highlights management's pre-announcement of a significant Q3 revenue upgrade, signaling continued momentum and potential for further bullish guidance revisions. However, the latest DeepValue master report, based on SEC filings, reveals extreme customer concentration, with Customer A accounting for 64% of quarterly revenue and sales occurring on cancellable purchase orders without long-term commitments. The report also notes a $66.4 million inventory increase to support ramps, alongside $8.1 million in write-downs, indicating demand forecasting risks and working capital pressure. Despite the positive operational news, these structural vulnerabilities persist, keeping the investment thesis in a 'WAIT' stance until diversification proof points emerge.

Implication

Credo's strong Q2 performance and raised Q3 outlook reinforce its leverage to AI infrastructure buildouts, potentially supporting short-term price appreciation. However, with a P/E of 111.7x and EV/EBITDA of 401.7x, the stock prices in flawless execution, offering minimal margin for error. The DeepValue report stresses that without evidence of customer diversification—such as a fifth hyperscaler ramp or reduced reliance on top customers—the business model remains exposed to single-program disruptions. Cancellable purchase orders further limit revenue visibility, meaning any pause in AI capex or hyperscaler spending shifts could swiftly impact results. Therefore, investors should await concrete de-risking signals, like Q3 revenue hitting the $335M-$345M range and customer concentration dropping below 35%, before considering an entry.

Thesis delta

The Seeking Alpha article provides incremental confirmation of Credo's operational momentum, likely exceeding the previously guided Q3 revenue range of $335M-$345M. However, it does not address the core risks highlighted in the DeepValue report, such as high customer concentration and limited order visibility, which are essential for shifting the thesis from WAIT to BUY. Thus, the recommendation remains unchanged: wait for operational diversification proof points or a lower entry price to improve risk-adjusted returns.