- Selection for this week
- Some Pros about the stock
- Some Cons about the stock
- Criteria for choosing
- The previous selections
So far the stocks added to this portfolio are being hit hard by the recent sell off in technology stocks with high momentum. The portfolio adds high quality, high Quant ranked stocks, no matter what industry they are in. This will over concentrate the portfolio at some times, like now, since the Quant system will tend to favor the stocks up the most in recent history. The portfolio will be volatile.
When Risk Off is the current environment, they should suffer more than the general market. When Risk On is in control, the portfolio should lead the way up. The CNN Fear and Greed Index has been in the Fear area (Risk Off) now for five straight weeks. Nearly the entire life of this portfolio.
Add: CRDO (Credo Technology) – Semiconductors
What does the company do?
Credo Technology Group Holding Ltd. develops high-speed connectivity solutions for AI, cloud, and data center networking. Its products include active electrical cables, optical transceivers, retimers, DSPs, SerDes chiplets, integrated circuits, and SerDes IP licensing for Ethernet and PCIe applications. Founded in 2008, the company is headquartered in Grand Cayman, Cayman Islands, and serves customers worldwide.
Why Some Investors Are Bullish
Explosive revenue growth driven by AI data center demand.
- Fiscal 2026 revenue reached $1.34 billion, up 205.7% from the prior year, while earnings increased more than 800%.
- Q4 revenue climbed to $437 million, exceeding the company’s entire fiscal 2025 revenue. Management believes continued AI infrastructure spending should support strong demand.
Guidance remains exceptionally strong.
- Fiscal 2027 guidance implies 80%+ revenue growth, with optical products expected to contribute more than $600 million.
- Q1 guidance of $465–475 million suggests continued growth from an already much larger revenue base, providing investors with encouraging demand visibility.
Margins continue expanding as the business scales.
- Non-GAAP gross margin reached 68.3%, while operating leverage continues to improve.
- Management is targeting non-GAAP net margins approaching 50%, although future margins may fluctuate as product mix evolves.
Strong balance sheet provides financial flexibility.
- Credo carries virtually no debt, maintains a current ratio above 10, and finished the year with approximately $1.4 billion in cash.
- Strong cash generation allows continued investment in R&D, acquisitions, and future growth without relying heavily on debt or shareholder dilution.
Wall Street remains bullish while acquisitions strengthen the product portfolio.
- Most analysts maintain Buy or Strong Buy ratings, reflecting optimism about Credo’s long-term AI networking opportunity.
- The DustPhotonics acquisition strengthens Credo’s optical connectivity portfolio and expands its roadmap for future 800G, 1.6T, and next-generation networking solutions.
What Bears Are Worried About
Valuation remains expensive.
- CRDO trades at approximately 95x trailing earnings and roughly 45x forward earnings, leaving little room for disappointment.
- Strong execution is already reflected in the stock price, making earnings reactions highly sensitive to guidance and investor expectations.
Customer concentration creates meaningful risk.
- Several hyperscale cloud customers each account for more than 10% of total revenue, making results dependent on a relatively small number of customers.
- Any slowdown in AI infrastructure spending, customer delays, or vendor changes could materially impact future revenue growth.
Competition, insider selling, and volatility remain important risks.
- Credo operates in a highly competitive market alongside companies such as Broadcom, Marvell, Astera Labs, Cisco, and Nvidia, while also exhibiting a beta above 3, making the stock significantly more volatile than the broader market.
- Recent insider selling appears consistent with profit-taking after a substantial rally rather than wholesale exits, but elevated expectations, increasing competition, and sharp price swings remain factors investors should monitor.
Bottom Line
Credo Technology is one of the fastest-growing beneficiaries of the AI infrastructure boom, with exceptional revenue growth, expanding margins, and a strong balance sheet. However, its premium valuation, customer concentration, and high volatility leave little room for execution mistakes.
Top Quant Stock of the Week Criteria
I am using a Quantitative research platform that provides a daily list of top-ranked stocks to buy or sell, based on a Comprehensive Quant Score. This Quant system uses computer algorithms to come up with its rankings. This score incorporates multiple factors, including valuation, growth, profitability, momentum, and EPS revisions.
I will be giving heavy weight to strong momentum and strong EPS revisions to make the weekly selection. Then, I will use my tested proprietary criteria to sort and then break any tie.
One stock will be selected each week. That would make 52 selections a year if I don’t miss any weeks because of internet problems.
The hold times for the stocks added will be 1 week to years. Although a 1 week hold would be rare, it could happen if the stocks Quant metrics took a big nose dive right after being selected. If an added stock maintains its good metrics, it will be kept in the portfolio until it doesn’t. No time limit. The Quant system will tell me when it is time to let it go. So the hold time is short, medium and long depending on the Quant system metrics.
All countries are included. ADR’s are ok but Pink Sheet stocks will not be allowed.
Certain Industries are excluded. My testing shows they do not perform well using Quantitative rankings. Two of the main ones are BioTechnology and Pharmacueticals.
The Remove Criteria: Once the stock no longer qualifies to be retained in the Portfolio, it will be removed. This could be because the companies metrics have deteriorated since selection, it is involved in a buyout or financial reporting problems.
Once a stock has been added to the Active list, it will not be added to. No doubling down.
The stocks considered are larger small cap, mid cap, large cap and Mega cap. They will be fairly easy to trade with opening or closing market orders as one of the ways to enter and exit positions.
It should be expected that about 50 stocks will be Active in the Portfolio in any given week, once it gets to the two year mark.
All stocks are added as equal weight. No rebalancing is to occur.
To be considered for addition, the stock has to be in the top group of Quant rankings for just several weeks. This is to allow newly upgraded stocks to qualify quickly. Hopefully, this will catch a couple of strong momentum stocks early in their move.
Once a stock is removed for cause, it can be added back in once it meets the add criteria. No waiting period is required.
There will be no limits on percentages of stocks in the Portfolio by Sector or Industry.
Previous Selections:
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