The investor response to a beat-and-raise earnings report from Credo Technology is the latest sign that interest in AI stocks has waned.
Credo late Tuesday said its adjusted earnings soared 525% year over year to 25 cents a share in its fiscal third-quarter ended Feb. 1. Its sales jumped 154% to $135 million. Analysts polled by FactSet had expected earnings of 18 cents a share on sales of $120.4 million.
For the current quarter, Credo predicted sales of $160 million, based on the midpoint of its guidance. That would represent year-over-year growth of 163%. Analysts were looking for $137 million.
However, on the stock market today, Credo stock dropped 14% to close at 46.73.
San Jose, Calif.-based Credo makes high-speed connectivity components for data centers. Its largest customer is Amazon.com's Amazon Web Services. Amazon accounted for 86% of Credo's revenue in fiscal Q3.
Year to date, Credo stock is down 30% despite the company seeing blistering growth from the buildout of AI data centers.
AI Stocks Getting Beat Down
AI stocks in the data center infrastructure space have fallen this year. Nvidia stock is down nearly 13% so far in 2025. Broadcom is down 17%. Marvell Technology was down 18% ahead of its fiscal Q4 earnings report. Astera Labs is down 48% year to date. Vertiv is down almost 23%.
Mizuho Securities trading desk analyst Jordan Klein called it "the busted AI trade" in a client note Wednesday.
"I am personally not letting this AI unwind change my conviction into second-half 2025 and beyond," Klein said. "It will come back strong in 2H25 is my prediction. Mark it down."
The next challenge to AI stocks will be earnings reports from two custom AI chipmakers, Marvell and Broadcom. Marvell tumbled after posting its fiscal fourth-quarter results late Wednesday. Broadcom will announce its fiscal first-quarter results late Thursday.
"Just clear as day that funds are looking for any reason to reduce exposure and positions to the AI semi, hardware, optical, interconnect stocks right now," Klein said.
In a client note Wednesday, Bernstein analyst Stacy Rasgon said AI stocks in the infrastructure space have been "battered by a storm of growth fears, supply chain noise, and tariff and regulatory risks."
Rasgon remains positive on AI chip stocks such as Nvidia for now. "Worries that the AI trade is 'over' feel a little premature to us, and valuation is getting increasingly attractive," he said.
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