r/InnerCircleInvesting

+114.7% revenue growth. Seven straight quarters of triple digits.
And $CRDO is still 30% below its highs.
That's either the opportunity or the warning.

Credo makes the chips that move data at insane speeds inside data centers. As AI clusters scale up, the connections between chips become the bottleneck. That's their lane and the Oct 8 Open CPX optics wave just put it center stage.

Whale check 🐋 —80.46%. The +33% month on real volume says money's moving.

So why 30% off highs with these numbers? Two reasons: the market hasn't repriced the growth or it's waiting on the H2 optical proof. Real risks: two customers are 61% of revenue, and retail interest is running hot.

Health update in two parts. Chart: above both rising averages, golden cross intact, $216.55 with room to the $231.59 weekly high. Company: debt-free, ~$764M cash, 33.8% net margins. It prints money and owes nobody.

Valuation is the fun part. PEG around 0.7. For 114% growth, that's absurdly cheap; anything under 1 is rare air. Paying for growth the market hasn't repriced yet.

Near term: the Oct 8 optics wave is fresh fuel; $231.59 is the next wall. Stifel kept its Buy but trimmed its target to $310 still way above here. Long term: management guides H2 optical past $600M. Levels: $209 support held twice. Under $205, I'm wrong.

If this thesis plays out, the H2 optical inflection lands, $600M+ revenue shows up, consensus target $262.67 implies about +21% from here. If it breaks under $205 instead, forget everything above. Educational only. Not financial advice.

Hope the week has gone well for you all. It’s been a busy one for me and I apologize for not being able to get the TIC Talks set up. Next week will likely be better.

Sector Refresher

https://preview.redd.it/bof08iw4f4th1.png?width=1272&format=png&auto=webp&s=37fb5232360a29bc74d5f9372a448b0e9d9aa470

I come back to this table every so often just to get an idea of what’s what. I tend to believe in the catch-up trade when it comes to the end of the year and, well, here we are. We can see pretty clearly that Discretionary, Utilities, Communications, Financials, Real Estate, and Staples have significantly underperformed the market. This certainly doesn’t mean the top performers will all come tumbling down - that would be very bad for the health of the overall market - but these pockets of relative underperformance can help us sift through some sand to see if we find something worth looking at further.

Digging into possibilities in those six sectors is something I can do over the next few weeks. I almost always end up spending too much time in Health Care, but something tells me I'll be looking for opportunities in Financials this year to finish things out. The credit conversation feels overdone, but I need to look into that later. I skipped Energy because the supply shock made sense for that being at the top.

Something weird happened in my brain when I saw the table and I went down that rabbithole instead. If Tech is doing so relatively well, how does Big Tech (ie the Mag 7) compare to the sector?

https://preview.redd.it/exd30jg8f4th1.png?width=1415&format=png&auto=webp&s=f4f660bfc83028026543256cc39acde63bbd0e82

So here we have a jumbled mess, but one that I hope I can walk you through. The main chart is $XLK, the entire Tech Sector showing a YTD performance of +38.79%. Using the color key on the left, you can see the Mag 7 names plotted against the Tech Sector. The three names we want to particularly pay attention to in this exercise are $AAPL, $NVDA, and $MSFT since they are the ones in the $XLK itself. $AAPL and $NVDA aren’t lagging too far behind the sector as a whole but $MSFT sure is.

https://preview.redd.it/jr0s4p1cf4th1.png?width=1415&format=png&auto=webp&s=da6dfaba9821f246ef6c380eabc3f4ba172d495c

If we were to take the summer gap (yellow box) out of $MSFT’s YTD chart, the name would be in a pretty clean uptrend channel from April and we would be right in the thick of that channel. That green gap seems to have been bypassed - if there are any further downdrafts, we can expect the name to find rest here, at worst, as a cushion for the fall. The nature of this uptrend channel in juxtaposition with relative performance implies that the name will continue to drift higher to close out the year.

I don’t think I’d be adding it here, but a small little drift down on a bad day would not be a bad thing for you to nibble on if you’re interested in building a position to take advantage of a longer-term thesis related to Azure or SaaS recovery. You won’t see the meteoric gains you would have caught if you bought in July, but I can see ATHs by EOY. If you were to ask me which Big Tech name looks good for the rest of the year, I think I just laid out the case for $MSFT.

I also find it interesting that $AMZN and $GOOGL are right there with it in YTD performance - that’s all the hyperscalers hanging out right there around +8%. You might be able to get away with picking any of the three and you’ll have a Merry Christmas, but $AMZN are $GOOGL are in sectors mired in their own challenges right now. That hyperscaler thought brought me to this:

https://preview.redd.it/kxx82ysjf4th1.png?width=1415&format=png&auto=webp&s=eca00af0a73cdfc5b71c4a19e617a18b653f6bac

A few rows down on market cap within $XLK would be $AVGO. I don’t have an explanation for what is happening here, but you can see how poorly it has performed compared to the sector and other chipmakers. It might be able to whipsaw its way back but I’m not adding to what I already have here. I’ll just wait because, for now, I just don’t get it. I'll find solace in knowing that it is only slightly behind the hyperscalers in general, so perhaps a move in those tides will rise all these ships to end the year.

$LOW

https://preview.redd.it/6ufkfjnmf4th1.png?width=1418&format=png&auto=webp&s=ce7685b0d62f932ae4614e7bf48270be86a261e6

Brutal. Looks like Lowe’s has completed a three-year round trip. In a rate-sensitive environment, you can see why a name like this isn’t performing well. Folks aren’t renovating, they’re not taking loans out to renovate at these rates, and there have been a ton of macroeconomic headwinds from tariffs to weakened consumers. The company has undertaken reforms over the last decade, improving operations and passing savings on to their customers. If you’re willing to stomach things out, the recovery will be led by reports of improved returns on those reforms.

The macroeconomic environment may have masked that ROIC, making expanding margins potentially a catalyst for recovery. I think the short-term moving average has a little bit of a ways to go, so a speedy recovery is not likely. Once we see it round out around the $200 level, the oversold conditions should have ended and that’s when the move back to $200 can get started. That’s when I’d expect it to become rangebound on the upper end at $240. 

The consolidation in that range would indicate the potential for a re-run toward those ATHs, but that only happens when the narrative shifts toward an uptick in renovations because people are happy with their current mortgages. We would see concurrent decreases in home sale prices and home sales to strengthen that narrative. Over time, that helps rates as homebuying demand cools further and further drives the potential for the renovation market. The overall flywheel is driven by things like wage growth and inflation, so it is not as easy as it is to write down. 

I’ve seen this movie before with this name. This was one of the strongest recoveries during the pandemic as people upgraded the homes they were trapped within. The drawdown came hard and is right to where we are today. For all intents and purposes, we have been rangebound since then and I can see an easy trade develop here once it is rangebound again. I just need to know that the knife has finished falling because getting down to $140ish would not surprise me at all. That would represent a true cutting in half from the last highs that served as a triple-top. 

$???

https://preview.redd.it/cs6afg9pf4th1.png?width=1429&format=png&auto=webp&s=9ed4f32cb4f90de50e585dad1c432a845d8c5979

Every so often I chart something fully knowing I won’t make a trade, so skip this section if that’s what you’re hunting. I’m really just looking to see if my reads are intact, so I’ve removed the ticker name, price, volume levels, and RSI in the hopes that this one is not identifiable. It also keeps us away from the financials and the narrative of the thesis, so it’s really just about the chart.

Note the timeline - about 3 years with a very strong uptrend channel identified in blue. Every so often, we see periods of excitement that causes it to gap up, but those gaps also fill down in an orderly fashion (yellow boxes). Using three of the relative tops of downtrends, we can create different downtrend channels to get an idea of whether this is healthy consolidation or problematic.

After slipping the moving averages (short-term in orange and long-term in teal), we also slipped Price Level 1 to fall to Current Price Level. Price Level 2 is not far away and could be a next stop if the steepest downtrend line holds. We are almost in correction territory over the last 6 months but are still within the uptrend channel and have yet to enter oversold conditions. The last time that happened was in late April and price slipped from Price Level 1 to Price Level 2; that is about the same amount that it would drop from the Current Price Level to Price Level 3 at the bottom of the uptrend channel.

That’s basically what I am watching for - slightly more oversold conditions should create a little bit more of a slide, maybe even all the way down to Price Level 4 or Price Level 5 if the momentum is completely lost. I don’t think it is going that far, likely settling down somewhere between Price Level 2 and Price Level 3 within this uptrend channel. That’s when the recovery can be counted on and the trade would be initiated if there was one.

I’ll come back to this in a few weeks when the gap between the moving averages should still be widening and the progress the short-term average made in closing the gap since July will be lost. The theoretical trade would be from somewhere between Price Level 3 and 4 with a recovery back to Price Level 1 and higher into the channel.