Credo Technology (NASDAQ: CRDO) has been a huge winner over the past several years. Artificial intelligence (AI) hyperscalers are using its connectivity hardware products in their data centers. Shares have risen by more than 880% since its IPO in early 2022.
But investors are grappling with a rapidly changing market climate. Suddenly, AI stocks have come under pressure following the monumental political shift in the wake of America’s recent midterm elections. Credo Technology has plunged over 60% from its former high.
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Despite the company’s strong performance in recent history, investors may not want to rush into buying shares until the dust settles on the current political landscape. Here’s what you need to know.
Future concerns put a damper on some excellent growth numbers
AI data centers need a ton of bandwidth to move data quickly between chips and servers so they can analyze and respond to a prompt quickly. Credo Technology’s products help make that happen. Its Active Electrical Cables (AEC) have been primarily responsible for driving Credo Technology’s growth.
Revenue increased by 114.7% year over year to $479 million in Q1 of its fiscal 2027. It is hard to fault investors for looking at buying such a steep dip in a stock when the underlying business is thriving like this.
But changes could be coming to the AI industry
On one hand, someone could look at the Q1 2027 results, see the stock is down over 60% from its high, and rush to scoop up shares. But it’s not that simple, not anymore.
Data centers are broadly unpopular among consumers, and the recent midterm elections have shifted the balance of political power toward Democrats, who seem to favor a slower pace and more regulations on AI companies.
Any threat to data centers is likely problematic for Credo Technology, which has come to depend on the AI hyperscalers. Two companies, widely believed to be AI hyperscalers, accounted for 71% of total sales in Q1 2027.
A tricky valuation to nail down
Unfortunately, it’s no longer as simple as valuing Credo Technology based on forward-looking revenue estimates. The more uncertainty there is around data center momentum, the more the company’s business results might vary over the next 48 months. Sales estimates could easily change if, say, a major customer slashes their data center spending.
