Why Credo Technology Sank This Week
2026-09-03 22:17
•Billy Duberstein •The Motley Fool
••••• •• Axe Cap view
Credo Technology Sell-Off: Growth Isn’t Enough
A strong revenue beat failed to stop a sharp share price drop due to margin concerns and valuation worries.
Credo Technology’s 29.5% plunge despite doubling revenues highlights a lesson beyond mere topline growth. Their gross margins fell from 68% to 64.5%, and rising stock-based compensation pushed earnings quality lower. In fast-growing tech sectors like AI networking, investors can forgive one or two slip-ups, but not when the valuation is already stretched—here around 50 times true forward earnings after adjusting for stock dilution. Compare this with South African tech majors like Naspers or Prosus which trade at more grounded multiples and show steadier profit metrics. For South African investors watching USD/ZAR, a risk-off move in high-multiple tech often means the rand could weaken as risk appetite dips. So if you have exposure to Credo or other US tech hyperscalers without clear local counterparts, expect volatility. This story reminds us that growth without profit discipline demands caution. this is just our opinion and not financial advice
Avoid adding to high-valuation US tech plays like Credo right now and consider trimming exposure if you already hold them. Keep an eye on Naspers/Prosus as less volatile vehicles in tech and watch USD/ZAR for signs of risk appetite shifts.
- CRDO
- USD/ZAR
- Naspers
- Prosus
- Margins improve unexpectedly, validating the high valuation
- A general tech rally lifts growth stocks indiscriminately
6/10
Credo Technology stock plunged 29.5% this week despite beating earnings expectations with 114.7% revenue growth and 130% EPS growth. The sell-off was driven by margin pressure, with GAAP gross margins falling to 64.5% from 68% last quarter, and higher-than-expected stock-based compensation. At a valuation of ~50x true forward earnings when accounting for stock dilution, investors viewed the results as insufficient given the company's already high valuation.
Our take is based on reporting first published by The Motley Fool.