AI Connectivity Valuation: What Are We Paying For?

Summary

AI connectivity is a critical sub-theme within AI infrastructure, with companies like CRDO, SMTC, MXL, MTSI, and ALAB all benefiting from the same spending cycle. The article focuses on CRDO's transition from active electrical cables to optical systems, highlighting strong financials and an ambitious optical revenue target of over $600 million in FY27, while noting that the broader market is debating which connectivity solution wins. For traders, the piece underscores that these stocks move in sync but have very different underlying revenue mixes, making each a distinct bet.

•CRDO FY2026 revenue exceeded $1.3 billion (up 206% YoY), with Q4 revenue of $437 million and non-GAAP gross margin of 68.3%.
•CRDO expects FY27 optical revenue to exceed $600 million across optical DSPs, silicon photonics PICs, and ZeroFlap optics, with each category over $100 million.
•The DustPhotonics acquisition reduces laser count in optical modules, lowering cost, power, and failure points.
•CRDO's AECs are in high-volume deployment with five of six hyperscalers, and neoclouds are an important growth vector.
•MXL is pushing an optical DSP ramp with 1.6T upside; MTSI is an optical component supplier with large Industrial & Defense and SATCOM exposure.
•SMTC is shifting toward data-center signal integrity, optical, and copper components; ALAB is moving into AI fabric switching, PCIe connectivity, custom silicon, and rack-scale systems.

Read time 5 min

Length 5,112 chars

Category finance

Ideas

Gaetano Substack author, Gaetano

The article quantifies CRDO's strong revenue growth (FY26 $1.3B, up 206% YoY), high margins (68.3% gross, 49.6% operating), and a clear optical expansion plan targeting >$600M in FY27, including the DustPhotonics acquisition and ZeroFlap system. This validating data suggests a bullish execution trajectory, though the author does not disclose a personal position. Risk: Optical revenue ramp may lag expectations; AEC competition or technology shifts could undermine copper-based business.

Ideas

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