Credo Technology Group Holding Ltd

Credo Technology Group Holding Ltd (CRDO), a provider of high-speed electrical and optical connectivity solutions, was a top contributor during the second quarter. Credo reported first-quarter results in June, exceeding consensus expectations for both revenue and earnings. The share price had been rallying since April, which we believe reflects a broader narrative re-rating by investors encouraged by the Company’s increasing optical product traction along with confidence in the duration of the opportunity that the Company’s current portfolio of copper product addresses. Although we trimmed our position size due to share price appreciation, Credo remains a core position, and we continue to believe that investor expectations underestimate the earnings power of the business.

Credo Technology Group Holding Ltd. has demonstrated significant growth, with its stock advancing +154% in the quarter, contributing positively to our portfolio despite broader market challenges. The semiconductor industry has been a standout performer, with Credo's strong operational execution positioning it well for future growth. The company is part of a sector that saw 68% of stocks outperforming the index, indicating a robust market environment for its business. We believe Credo's fundamentals remain strong, and its growth characteristics are durable, making it a valuable addition to our portfolio.

Credo Technology, a provider of high-speed connectivity solutions for data centers, soared 190% on surging hyperscaler demand for its active electrical cable products. The strong performance reflects the increasing importance of AI infrastructure demand, which has been a powerful driver for the portfolio's semiconductor and connectivity holdings. As Credo's market capitalization has outgrown the benchmark following its removal from the index, we have begun exiting the position, indicating a strategic adjustment rather than a negative outlook on the company's growth potential.

Credo Technology was down over 50% from its ATH by the end of March on the narrative that 'Copper is dead' in data centers. That narrative has since changed in Q2 with the market beginning to realize that Credo’s ZeroFlap optics platform is a real second leg for the company and the acquisition of Dust Photonics, an integrated circuit optics company, makes Credo a viable optics player. The company returned 191% in Q2. I continue to view the company favorably on a growth and valuation basis and it is one of the fund’s largest holdings.

The team added Credo, which focuses on high performance, energy efficient silicon for next gen networking and power electronics. This aligns with Jennison's growing conviction that the next phase of structural growth will extend across a broader set of businesses, particularly those supporting the continued buildout of AI. Investors are underwriting multi-year revenue compound annual growth rates (CAGR’s) tied to AI, cloud, and digital transformation, making Credo a strategic addition to the portfolio.

Credo Technology (CRDO) was our top contributor during the quarter as the company reported solid results for its most recent quarter and, more importantly, raised full year Fiscal 2027 revenue guidance to at least 80% growth from previous guidance of at least 50% growth. Credo provides intra-rack connections for AI data centers. The company recently introduced optical products that expand its market opportunities and should continue to drive growth into the future.

We initiated positions in Credo Technology as part of our strategy to capitalize on the ongoing generational investment cycle. The company is well-positioned to benefit from the robust AI investment landscape, which is expected to drive productivity gains across various sectors. Our focus on fundamental differentiation leads us to believe that Credo Technology will create durable economic value, distinguishing itself in a competitive market.

Credo Technology Group Holding Ltd. (CRDO) was one of the top contributors to the Russell 2000 Growth Index, advancing +154%. However, the letter does not provide a specific argument or stance regarding the company's future performance or valuation, merely noting its contribution to the index's gains.

Credo Technology provides specialized cables used in AI data centers. The company has been growing very rapidly, but investors have become concerned about replacement risks from both increased competition and evolving data center architecture potentially reducing demand for its specialized data cables. While we acknowledge the risk from technological change, we view it as unlikely to impact the business in the immediate to mid term. The massive spending in data centers as telecasted by hyperscalers should benefit all suppliers, even with some market share shifts.

Credo Technology has been a significant contributor to the information technology sector, producing half of the industry's return despite the sector underperforming the benchmark. The manager highlights the company's strong market position and the focus on consistent earnings and cash flow growth, which aligns with the fund's investment strategy. This positive performance amidst a challenging market environment indicates a favorable outlook for Credo Technology.