Credo Technology Group Holding Ltd (CRDO) (Q1 2027) Earnings Call Highlights: Record Revenue ...

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Credo Technology Group Holding Ltd (CRDO) (Q1 2027) Earnings Call Highlights: Record Revenue ... GuruFocus News Wed, September 2, 2026 at 1:00 AM EDT 9 min read CRDO This article first appeared on GuruFocus . Revenue: Record $479 million in Q1 fiscal 2027, up 10% sequentially and 115% year over year. Non-GAAP Gross Margin: 68% in Q1, at the midpoint of guidance. Non-GAAP Operating Income: $230.6 million in Q1, with a non-GAAP operating margin of 48.2%. Non-GAAP Net Income: Record $236.3 million, up 4% sequentially and more than doubled year over year; non-GAAP net margin was 49.3%. Cash Flow from Operations: $90.2 million in Q1, down $92.0 million sequentially due to working capital changes. Capital Expenditures: $7.3 million in Q1; free cash flow was $82.9 million. Cash and Equivalents: $764.3 million at quarter end, down $679 million due to the DustPhotonics acquisition. Inventory: $313.1 million, up $62.2 million sequentially. Non-GAAP Operating Expenses: $95.2 million in Q1, up 16% sequentially. Q2 Fiscal 2027 Guidance: Revenue expected between $525 million and $535 million; non-GAAP gross margin between 67% and 69%; non-GAAP operating expenses between $100 million and $105 million. Fiscal 2027 Outlook: More than $600 million in optical revenue, with ZeroFlap Optics, Silicon Photonics PICs, and Optical DSPs each contributing over $100 million; total revenue growth expected to exceed 85% year over year. Warning! GuruFocus has detected 3 Warning Sign with CRDO. Is CRDO fairly valued? Test your thesis with our free DCF calculator. For the complete transcript of the earnings call, please refer to the full earnings call transcript . Record Q1 FY2027 revenue of $479 million, up 10% sequentially and 115% year-over-year, marking the seventh consecutive quarter of triple-digit growth. Non-GAAP gross margin remained strong at 68%, with non-GAAP net income reaching a record $236.3 million, up 140% year-over-year. Optical business is expanding rapidly, with record Optical DSP revenue, first Silicon Photonics PIC revenue, and a confirmed $600 million+ optical revenue target for FY2027. AEC business continues to grow with deep relationships at five hyperscalers and expanding neocloud engagements, supported by the transition to 200 gig per lane and 1.6T ports. Emerging growth areas like Active LED Cables (ALC) and OmniConnect gearbox solutions are gaining traction, with revenue expected to begin in fiscal 2028, potentially adding thousands of dollars of content per GPU. Strong customer diversification with four customers each contributing at least 10% of revenue, and continued progress in broadening the revenue base across hyperscalers, neoclouds, and other customers. The company is well-capitalized with $764.3 million in cash, enabling continued investment in R&D and growth opportunities despite the DustPhotonics acquisition cash outlay. Customer concentration remains high, with the top four customers each accounting for at least 10% of revenue, and the largest customer representing 33% of revenue. Operating expenses increased 16% sequentially to $95.2 million, above the high end of guidance, due to heavy R&D investment, and are expected to rise approximately 55% year-over-year. Cash flow from operations declined to $90.2 million in Q1, down $92.0 million sequentially, primarily due to changes in working capital. Inventory levels increased by $62.2 million sequentially to $313.1 million, reflecting supply chain investments that could pose a risk if demand softens. The company faces potential supply chain challenges and tariff uncertainties, which could impact margins and the ability to meet the aggressive second-half revenue inflection. Optical revenue growth is heavily dependent on the successful ramp of ZeroFlap Optics, Silicon Photonics PICs, and Optical DSPs, each expected to contribute over $100 million in FY2027, which carries execution risk. The transition to 1.6T solutions and new technologies like NPO and ALCs is still in early stages, with revenue contributions not expected until fiscal 2028, creating a gap in near-term growth drivers. Q : As we think about the opportunity for your discrete DSPs and PICs of that $600 million and also growing over time, isn't the customer mix moving more toward direct hyperscaler sales who are making their own custom transceivers? As they do that, how does that improve your customer visibility and stickiness with that customer base? A : In looking at our optical components business, this is a really important part of our business, short-term and long-term. Ultimately, it's the path where we're going to pursue that pluggable optical transceiver market that is based on mainstream standards. The combination of having an optical DSP and a PIC and being able to offer that system level, even within a component offering, that'll help our customers deliver what we see as the most competitive combination of system performance, power, and yield. Many times, our module customers are working directly with hyperscalers, and the hyperscalers are active in basically pointing to the components that they want to be put together within the modules that our module customers offer. And so the hyperscalers play a big role in both the component sale part of our business to our module customers, as well as our ZeroFlap Optics modules that we're building ourselves. Long-term, I think that is going to be a balance that we see that will continue to where we're going to see that, in fact, our component sales and our module sales will be complementary in the sense that the broad part of the market will be addressed by components. A very specific part of the market that really is focused on reliability will be a new product that's offered in that transceiver space. (CEO Bill Brennan) Q : I wanted to go back on the AEC growth in the second half and then longer term. If I take your 85% growth outlook for the year, it suggests about $500 million of incremental growth in the second half. If optics is going to be the bulk of it, then that $600 million, that suggests more conservative assumptions about AEC growth. I was just hoping if you could give us some more details on the optics versus the AEC segmentation in the first half versus second half, and what that implies for AEC growth in the second half, and then how should we model AEC growth longer term? A : I think that as we look at the entire year, and we look at the growth across each one of the products that we're bringing to market, we see growth across the board. Now, of course, with our optical solutions, this is really the first year that we're ramping, and it makes a lot of sense based on what we're bringing to market that we'll be able to achieve a really fast-paced growth. I think AECs will continue to grow. You've got to consider where we've grown from. AECs have driven growth over the last two fiscal years, more than doubling from 2024 to 2025, and then more than tripling from 2025 to 2026. I think that, as we look at our opportunities in AEC, we continue to see expanding opportunities. In a sense, I think we're looking at clearly a slower growth overall compared to the fact that we're growing into such a large market with optics. It makes sense that optics will grow faster because we're growing from a smaller base. Long term, I think you'll see AECs grow, and as we continue to scale as a company, I think you'll see a really nice balance between copper solutions and optical. (CEO Bill Brennan) Q : You mentioned 2027 as a stepping stone, and you're already growing 85% year-over-year. As you look out to fiscal 2028, can you give us some perspective on how to look at it? Obviously, AEC is growing, might be like 50% this year. You have ZeroFlap Optics ramping, SiPho, the ZeroFlap Optics and SiPho is like $600 million for fiscal 2027, which kind of annualized is like a $1 billion plus run rate. As you mentioned, Active LED Cables as well. As you have all these four segments ramping, can you give us some perspective on how to look at fiscal 2028? A : The conversation about fiscal 2028 and 2029 and 2030 is something that's a very active conversation within our leadership team at Credo. Let me first touch on ALC as a part of our portfolio. The ALC product that we're bringing to market first is using microLED technology. The promise of this technology is really to deliver the same reliability and the same power efficiencies at a core technology level as AECs. Key difference there is we'll extend the length to 30 meters. ALCs will represent our third differentiated pluggable transceiver solution. So different things we first did, kind of created the product category with AECs, followed by ZeroFlap Optics, again, creating a new product category. ALCs will be the third leg of that stool. The bottom line is I look at that pluggable transceiver market, and I think that's just step one for ALCs and the microwave meta technology. A next natural step forward on that is to apply that to what comes with the scale-up opportunity, because again, in scale-up, this is another technology alternative, but the promise there is that at a core technology level, we'd be addressing some of the problems that have prohibited that market from taking off with solutions specifically related to reliability, availability, and serviceability. We view ALC as a big multi-billion dollar opportunity, followed by as big of an opportunity with scale up. It's highly complementary to the suite of technologies that we've brought to market. The way that I think about the future, more specifically to answer your question, is that we're trying to put ourselves in several multi-billion dollar TAM opportunities. You can just analyze our portfolio across the pluggable space, and you can see that it's really tens of billions of dollars of opportunity that we're now going to be addressing in our fiscal 2028 timeline, given the fact that ALCs will be part of the portfolio. We're trying to put ourselves in position to address a very large market. Our growth as a company will follow based on our success in executing with every customer. I think we're quite bullish on the opportunity, and that's without even talking about the massive opportunity that the entire industry has in front of us with scale up. Even think about OmniConnect. We've articulated in the past that that's a multi-billion dollar opportunity annually as well. I think that as we think about fiscal 2028, you're right. We think about outsized growth again for another year, but we think that'll continue for the years that follow as well. (CEO Bill Brennan) Q : I just wanted to ask a little bit about PILOT and some of the telemetry data that your solutions are picking up. As your

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