Credo expects 120% year-over-year revenue growth through fiscal 2026 as AEC and optical solutions drive record results
Sep. 03, 2025 7:31 PM ET
AI-Generated Earnings Calls Insights
Earnings Call Insights: Credo Technology Group Holding Ltd (CRDO) Q1 2026
Management View- William Brennan, President, CEO & Chairman, highlighted that Credo delivered revenue of $223 million in Q1, representing a 31% sequential and 274% year-over-year increase, attributing this performance to demand for high-speed connectivity solutions in AI infrastructure. He stated, "Credo's growth has been fueled by strategic partnerships with hyperscalers and key customers built on our ability to tackle their most complex connectivity challenges."
- Brennan emphasized the success of the active electrical cable (AEC) product line, noting that three hyperscalers contributed over 10% of revenue, and a fourth hyperscaler delivered its first material revenue in Q1. He remarked, "We anticipate this revenue to grow throughout the fiscal year, further strengthening our market position."
- The optical business sustained strong momentum, with Brennan stating, "We are on track to achieve our goal of again doubling optical revenue in fiscal '26."
- On system-level innovation, Brennan described the integration of SerDes technology, advanced IC design, and system-level development as "empowering customers to streamline system development and achieve peak performance, yield and reliability."
- Daniel Fleming, Chief Financial Officer, reported, "In Q1, we reported revenue of $223.1 million, up 31% sequentially and up 274% year-over-year and well above the high end of our guidance range."
- Fleming added, "Our non-GAAP net income was $98.3 million in the quarter, a record high and a 51% sequential increase compared to non-GAAP net income of $65.3 million in Q4."
Outlook- Fleming guided Q2 revenue to be between $230 million and $240 million, "up 5% sequentially at the midpoint."
- Q2 non-GAAP gross margin is expected to range from 64% to 66%, with non-GAAP operating expenses between $56 million and $58 million.
- Fleming projected "sequential revenue growth in the mid-single digits, leading to approximately 120% year-over-year growth" for fiscal year '26.
- He noted, "We expect each of our top 3 customers from Q1 to grow significantly year-over-year in fiscal year '26. We also expect revenue diversification to strengthen further with the fourth customer surpassing the 10% revenue threshold for the year."
Financial Results- Product business revenue reached $217.1 million in Q1, up 31% sequentially and 279% year-over-year.
- Non-GAAP gross margin was 67.6%, up 20 basis points sequentially.
- Non-GAAP operating income totaled $96.2 million, up from $62.5 million in Q4, and non-GAAP operating margin rose to 43.1% from 36.8% in the prior quarter.
- Cash flow from operations was $54.2 million, with free cash flow at $51.3 million. Credo ended Q1 with $479.6 million in cash and equivalents.
- Q1 inventory stood at $116.7 million, an increase of $26.6 million from the previous quarter.
Q&A- Karl Ackerman, BNP Paribas Exane, asked about AEC adoption at hyperscalers and the breadth of programs. Brennan responded that recent ramps have been at 100 gig per lane and noted multiple programs in flight per customer. "Everything we've seen over the last three months has been encouraging in a sense that we did see a pull-in from the schedule that we talked about, and we really effectively delivered to the volumes that they wanted."
- Vivek Arya, BofA Securities, inquired about market size and cannibalization. Fleming shared, "Our largest customer was 35% of revenue. Second largest was 33% and the third largest was 20%." Brennan addressed market trends, stating, "I think for the first time in history that you're seeing copper replacing optical connections."
- Thomas O'Malley, Barclays, probed competitiveness in optical DSP at the 1.6T node. Brennan replied, "We moved to 3-nanometer straightaway due to power. We feel like we're in great shape from the standpoint of the product that we're going to bring to production in the upcoming months."
- Quinn Bolton, Needham & Company, asked about the fourth hyperscaler's program. Brennan said, "I'm not going to be too specific with the exact application, but I will say it's not a single rack architecture," and expects multiple programs to ramp over time.
- Sujeeva De Silva, ROTH Capital Partners, questioned the breadth of rack-to-rack adoption. Brennan responded, "I would say that we're at the early stages still of having the market expand into rack-to-rack types of solutions."
Sentiment Analysis- Analysts focused on market size, customer concentration, product ramp timing, and competitive positioning, with a tone that was predominantly positive but probing for detail on growth drivers and diversification.
- Management conveyed high confidence, especially on revenue growth, customer diversification, and product innovation, as reflected in statements like, "I believe our strong results today demonstrate our potential, and I'm increasingly optimistic about the opportunities that lie ahead."
- Compared to the prior quarter, both analysts and management maintained a positive but more assertive tone, with increased emphasis on Credo’s leadership and clear progress with customer expansion.
Quarter-over-Quarter Comparison- Revenue increased from $170 million in Q4 2025 to $223.1 million in Q1 2026, with a sequential margin improvement.
- Customer concentration shifted, with the largest customer now at 35% of revenue compared to 61% in the previous quarter, reflecting improved diversification.
- Management guidance moved from expecting revenue to "exceed $800 million" for fiscal 2026 to now targeting "approximately 120% year-over-year growth."
- Analysts in both quarters highlighted customer diversification and market expansion; however, this quarter’s questions placed greater focus on new hyperscaler wins and the pace of optical market adoption.
Risks and Concerns- Management cited shipment timing as a source of nonlinear growth at the customer level.
- Fleming noted that "customer mix will vary from quarter-to-quarter," which could impact revenue patterns.
- Tariff regime changes remain a variable in guidance assumptions.
- Analysts raised questions about the scalability of new AEC and optical programs and the timing of customer ramps, indicating some uncertainty about linear growth expectations and competitive dynamics.
Final Takeaway
Credo Technology Group delivered record quarterly revenue and profitability in Q1 2026, driven by robust demand for AEC and optical solutions and strengthened by growing hyperscaler partnerships. With continued innovation, expanding customer diversification, and a strong outlook for sequential and year-over-year growth, management projects sustained momentum through fiscal 2026. The company is poised to capitalize on multiple waves of AI infrastructure build-outs, supporting confidence in its position as a high-value partner in next-generation data center connectivity.
Read the full Earnings Call Transcript |
