Revenue Up 126% YoY. This "Picks and Shovels" Business Makes the Digital Plumbing That Keeps AI Data Centers Running.

Today, I'm looking at Credo Technology (CRDO). They make the connectivity hardware that keeps AI data centers from melting down.

Quick highlights before you dive into the full report:

• They're up 126% YoY to $437M in revenue by solving the "last mile" problem for data traveling at light speed

• Trading at a nose-bleed 46x sales because they're essential to Amazon, Microsoft, and other hyperscalers. The market seems to be dismissing their customer concentration, as discussed below.

• Finally profitable with 65% gross margins using a contrarian approach - they get cutting-edge performance from older, cheaper chip processes

• Customer concentration is brutal, one customer (probably Amazon) is 86% of revenue in the most recent quarter.

The entrepreneurial takeaway: Sometimes the best business isn't the sexy one everyone talks about. It's the boring infrastructure that makes everything else possible. This is your prototypical "picks and shovel" business in the midst of a generational AI gold rush!

With that, I'll talk to you tomorrow.

Nick

TL;DR

• What: Credo Technology (CRDO) creates high-speed connectivity solutions for AI data centers—the essential "digital plumbing" that prevents bandwidth bottlenecks

• Revenue growth: 126% YoY to $437M, with 65% gross margins and newfound profitability

• Market position: $19.9B market cap (46x sales) serving hyperscalers like Amazon (61% of revenue) and Microsoft

• Secret sauce: Achieves cutting-edge performance using mature, cheaper semiconductor processes

• Key lesson: The best AI plays aren't always the flashy models—sometimes it's the boring infrastructure that prints money

The 30,000-Foot View

Credo operates a fabless semiconductor model, designing connectivity solutions while outsourcing manufacturing to TSMC. Revenue mix: 94% product sales (Active Electrical Cables and optical DSPs), 3% IP licensing, 3% engineering services.

Key stats: $19.9B market cap on $437M TTM revenue (46x sales multiple), 65% gross margins, 8.5% operating margin, 622 employees. Classified under semiconductor manufacturing (NAICS 334413), but think of them as connectivity architects solving AI's bandwidth crisis.

Company History

• 2008: Founded by Lawrence Cheng and Yat Tung in Milpitas, CA

• 2008-2020: Stealth R&D mode, developing contrarian approach using mature fab processes

• 2017: Invented Active Electrical Cables (AECs)—perfect timing for AI boom

• 2020: $100M Series D round during COVID

• 2022: IPO at $10/share (raised $200M), below target range

• 2024-2025: Revenue explodes 180%, stock up 730% from IPO as hyperscalers adopt

Show Me the Money

Stand-out features:

• Huge revenue growth

• Zero debt with $431M cash war chest

• Operating leverage story: losses to 8.5% margins in one year

Financial Data

The N.O.O.B. Nine — Competitive Powers

The Nerd Out on Business Nine is made up of Hamliton Helmer's famous "7 Powers" of competitive advantage (Scale Economies, Network Economies, Counter-Positioning, Switching Costs, Branding, Cornered Resource, and Process Power) combined with two of my own (Data Flywheel and Distribution Advantage).

Average Score: 3.8/5 - With a 3.8 average, Credo has built meaningful competitive moats, particularly in counter-positioning and process power.

Memorable Marketing

Credo's "We Connect" brand platform focuses on technical excellence over flash. Key campaigns:

• PILOT Platform Launch (May 2025): Repositioned from "connectivity plumber" to intelligent platform provider; drove 30% stock surge

• Hyperscale Success Stories: Published specific ROI metrics (Oracle: 35% cost reduction)

• CEO Thought Leadership: Bill Brennan's GSA board position builds more credibility than ads

Tactical takeaways:

1. Lead with technical expertise, not marketing fluff

2. Focus on few high-value customers before diversifying

3. Frame product launches as strategic transformations

4. Pursue industry leadership roles

5. Always quantify customer ROI

AI Uses & Opportunities

Current uses: PILOT platform's predictive diagnostics create "connectivity intelligence"—predicting failures before they cost millions in downtime.

Future opportunities:

• Cost cutting: AI-powered yield optimization

• Product value: Machine learning improves signal integrity with each deployment

• New revenue: Platform licensing transforms hardware sales into recurring revenue

The real opportunity: becoming the nervous system for AI infrastructure as models grow larger.

Bumps in the Road

• Customer concentration: One customer (likely Amazon) = 86% of revenue in most recent quarter

• Insider selling tsunami: $2.3B sold in 2025, including $1.8B from Chairman

• Giant competitors: Broadcom ($550B) and Marvell have deeper pockets

• Taiwan risk: TSMC manufacturing concentration creates geopolitical vulnerability

• Valuation pressure: 46x revenue multiple leaves zero room for error

Your Swipe File

• Focus on unsexy infrastructure: While everyone chases AI models, profit from essential plumbing

• Turn disadvantage into moat: Using older processes for cutting-edge performance flips conventional wisdom

• Customer concentration doesn't have to be fatal: One whale (Amazon) provided capital and credibility to expand. But, all-in-all, this is where I'd spend most of my time diversifying if I were them. They know this though.

• Platform pivots transform valuations: Adding software to hardware justifies premium multiples