Credo anticipates $10B+ total market amid record Q2 growth and launch of new connectivity pillars
Dec. 01, 2025 10:44 PM ET
AI-Generated Earnings Calls Insight
Earnings Call Insights: Credo Technology Group Holding Ltd (CRDO) Q2 2026
Management View- Bill Brennan, President, CEO & Chairman, reported record revenue of $268 million for Q2, reflecting 20% sequential growth and a 272% increase year-over-year. He stated, "These are the strongest quarterly results in Credo's history, and they reflect the continued build-out of the world's largest AI training and inference clusters."
- Brennan highlighted that 4 hyperscalers each contributed more than 10% of total revenue, with a fifth starting to contribute initial revenue. He called out the AEC product line as "the fastest-growing segment in the company," and described its expansion as being driven by customer diversity and displacement of optical rack-to-rack connections.
- Major strategic announcements included the addition of three new growth pillars: Zero Flap optics, active LED cables (ALCs), and OmniConnect gearboxes. Brennan explained, "We now have 5 distinct high-growth connectivity pillars... Together, they'll give Credo a combined total market opportunity that we believe will exceed $10 billion in the coming years, more than triple where we stood just 18 months ago."
- Brennan described live data center trials for Zero Flap optics, the ramp up of ALCs with the Hyperlume team, and the unveiling of the Weaver gearbox as part of the OmniConnect family, targeting memory to compute connectivity.
- Daniel Fleming, Chief Financial Officer, stated, "In Q2, we reported revenue of $268 million, up 20% sequentially and up 272% year-over-year and well above the high end of our guidance range." Fleming added, "Our non-GAAP operating income was $124.1 million in Q2 compared to non-GAAP operating income of $96.2 million in Q1, up demonstrably due to the leverage attained by achieving more than 20% sequential top line growth, while OpEx growth was in the mid-single digits."
Outlook- Fleming guided Q3 fiscal '26 revenue between $335 million and $345 million, which represents a 27% sequential increase at the midpoint.
- The company expects Q3 non-GAAP gross margin to be between 64% and 66%, with non-GAAP operating expenses projected between $68 million and $72 million.
- Fleming stated, "We expect sequential revenue growth in the mid-single digits, leading to more than 170% year-over-year growth in the current fiscal year. We expect our non-GAAP net margin to be approximately 45% for fiscal year '26. This should translate to net income more than quadrupling year-over-year."
Financial Results- Product revenue reached $261.3 million in Q2, up 20% sequentially and 278% year-over-year.
- Non-GAAP gross margin was 67.7%, exceeding the high end of guidance. Product non-GAAP gross margin was 66.8%.
- Non-GAAP operating expenses were $57.3 million, slightly above midpoint guidance, with non-GAAP operating income at $124.1 million and non-GAAP net income at $127.8 million.
- Cash flow from operations was $61.7 million, and free cash flow was $38.5 million, with cash and equivalents ending at $813.6 million. Inventory was $150.2 million.
Q&A- Thomas O'Malley, Barclays: Asked about ALC market potential and customer ramp timing. Brennan described ALCs as ideally positioned for reliability and power efficiency, estimating connections could be up to 10x more than scale-out connections, and confirmed the bullish outlook for microLED technology. Fleming detailed that the top 4 customers represented 42%, 24%, 16%, and 11% of revenue, noting customer ramp patterns are not linear but have strong long-term visibility.
- Tore Svanberg, Stifel: Inquired about system-level optical products and SerDes technology. Brennan emphasized focus on system-level value and described ZF optics as delivering network reliability with advanced telemetry, and stated the SerDes architecture enables unprecedented bandwidth and reach.
- Vivek Arya, BofA: Asked about AEC applications and ASP uplift on 200 gig per lane. Brennan noted AECs are in production across multiple applications and expects uplift as the market migrates to faster speeds.
- Quinn Bolton, Needham: Questioned AEC supply and top customer lane speeds. Brennan acknowledged increasing industry-wide wafer demand and described their strategy of using older geometry processes. He confirmed production at 25, 50, and 100 gig per lane, with 100 gig as one of the fastest-growing segments.
- Sujeeva De Silva, ROTH: Asked about customer penetration differences and ALC manufacturing. Brennan stated each hyperscaler is a different market, and the company sees a path to greater diversification in both customer base and protocols. He confirmed the ALC strategy will mirror the AEC approach.
- Vijay Rakesh, Mizuho: Queried scale-up revenues and gross margin. Brennan targeted PCIe Gen 6 for scale-up, with protocol agnostic solutions for 200 gig per lane, and Fleming reiterated the long-term gross margin expectation of 63% to 65%.
- Additional analyst questions addressed Hyperlume integration, timing of ALCs, ZF optics flexibility, IP licensing, optical transceiver margins, and customer purchase timing. Management maintained confidence in execution, system-level ownership, and customer alignment.
Sentiment Analysis- Analysts focused on growth sustainability, customer ramp timing, supply constraints, and market diversification, with a generally positive yet probing tone. Questions revealed interest in TAM expansion, product differentiation, and execution risk.
- Management maintained a confident outlook throughout, emphasizing operational excellence, innovation, and strong customer partnerships. Brennan and Fleming consistently projected confidence in product roadmap, customer visibility, and execution, using phrases such as "We feel pretty good about where we are" and "I feel confident about bringing a product to market."
- Compared to the previous quarter, both analysts and management maintained a positive tone, but with increased focus on execution risk, product diversification, and new market opportunities.
Quarter-over-Quarter Comparison- Revenue grew from $223 million in Q1 to $268 million in Q2, with non-GAAP gross margin largely stable.
- The outlook for sequential revenue growth was raised to a higher range, and full-year growth expectations increased from approximately 120% to more than 170% year-over-year.
- Strategic focus expanded sharply with the announcement of three new product pillars, whereas the previous quarter emphasized execution in core AEC and optical businesses.
- Analyst questions shifted from customer concentration and linearity of ramps to supply constraints, new growth drivers, and manufacturing strategies, reflecting heightened interest in scaling challenges and diversification.
- Management's tone remained confident, but this quarter introduced more detailed forward-looking commentary on new product categories and TAM expansion.
Risks and Concerns- Management cited potential wafer supply constraints across the industry but emphasized their strategy of using older geometry processes and strong foundry relationships.
- Customer ramp patterns were described as nonlinear, introducing potential for variability in quarterly results.
- Analysts raised concerns about execution on new growth pillars and the timing of product ramps, particularly for ALCs and Zero Flap optics.
- Management addressed intellectual property risks by highlighting recent licensing agreements and ITC filings to protect AEC innovations.
Final Takeaway
Credo delivered record results in Q2 2026, driven by strong AEC growth and increasing customer diversification, while unveiling three new product pillars that more than triple its addressable market. Management projects continued sequential revenue and net income growth, supported by visibility into customer ramps and robust execution on new connectivity solutions, positioning the company for long-term expansion and operational leverage.
Read the full Earnings Call Transcript |
