CRDO vs. AVGO: Which AI-focused Semiconductor Stock is the Better Buy?

Credo Technology (CRDO) and Broadcom (AVGO) are positioned to benefit from the growth in AI-driven data centers, with both companies experiencing revenue growth and expanding their product portfolios. Credo is seeing strong demand for its Ethernet and Active Electrical Cables, while Broadcom is capitalizing on the increasing investment by hyperscalers in custom AI accelerators (XPUs), projecting a serviceable addressable market between $60 billion and $90 billion in fiscal 2027. While CRDO's revenue growth is expected to be 163.2% for the fiscal fourth quarter, AVGO's AI-related revenue grew 77% year over year, leading to an expectation of $4.4 billion for the second quarter of fiscal 2025; Zacks Investment Research currently favors AVGO due to its Zacks Rank.

Analysis

The AI-driven data center transformation is creating significant tailwinds for specialized semiconductor companies like Credo Technology (CRDO) and Broadcom (AVGO). Credo is capitalizing on this through its Ethernet and Active Electrical Cables (AECs), with AECs demonstrating triple-digit sequential growth in Q3 FY25 due to their over 100-times improved reliability compared to laser-based optical solutions. Credo is also expanding into PCIe solutions, targeting a projected $1 billion PCIe retimer market by 2027, and has introduced innovative Optical DSPs like the Lark 800 and Lark 850, optimized for 800G transceivers with low power consumption crucial for AI data centers. For Q4 FY25, Credo anticipates revenues between $155 million and $165 million, with the Zacks Consensus Estimate of $160 million implying a substantial 163.2% year-over-year growth. Broadcom, a more diversified entity, is leveraging strong demand from hyperscalers developing custom XPUs, projecting a serviceable addressable market for XPUs and networks between $60 billion and $90 billion in fiscal 2027. Its next-generation XPUs are advancing to 3-nanometer and 2-nanometer process nodes. In its last reported quarter, Broadcom's semiconductor solutions revenues rose 11% year-over-year to $8.2 billion, significantly driven by a 77% year-over-year surge in AI-related revenues to $4.1 billion. For Q2 FY25, Broadcom projects total revenues of $14.9 billion, with AI semiconductor revenues expected to grow 44% year-over-year to $4.4 billion. While CRDO's stock has appreciated 67.8% over the past month compared to AVGO's 36.3%, CRDO trades at a forward 12-month Price/Sales ratio of 15.50X, slightly below AVGO's 16.05X. Analyst sentiment, as reflected by Zacks Ranks, favors AVGO (Rank #2, Buy) with marginal upward earnings estimate revisions, whereas CRDO holds a Rank #3 (Hold) with unchanged estimates.

Key Decisions for Investors

• Investors may find Broadcom (AVGO) a more compelling immediate investment due to its 'Buy' rating from Zacks, positive earnings estimate revisions, and proven execution in the AI semiconductor space with 77% YoY AI revenue growth in the last quarter, despite a slightly higher forward P/S ratio.
• Credo Technology (CRDO) presents a high-growth opportunity, evidenced by its forecasted 163.2% YoY revenue growth for Q4 FY25 and strong positioning in AECs and emerging PCIe solutions, which could appeal to investors with a higher risk appetite, though its 'Hold' rating and static earnings estimates warrant caution.
• Monitor both companies' progress in their respective AI niches: for CRDO, track the adoption and revenue contribution from AECs and new PCIe products; for AVGO, watch for continued XPU development success and sustained growth in AI-related revenues from hyperscaler engagements.