Live: Will Credo Technology Crush Earnings After the Bell Tonight?

Credo shares are now down about 4.4%, which is a massive improvement from the -14% drop they experienced right after earnings were announced. Here are some highlights from their earnings call.

“Our AEC product line once again delivered strong growth, driven by existing customers and new wins, including our fifth hyperscaler. Demand is accelerating across both hyperscalers and emerging Neocloud providers. We continue to believe the industry is early in its AEC adoption. As AI clusters scale, reliability and power efficiency have become the primary design constraints. AECs are now the de facto standard for intra rec and rec to rec connectivity up to 7 meters, increasingly displacing laser-based optical modules. ”

Customer concentration has been a key concern, which the company partially addressed here with a fifth hyperscaler win.

Here’s Credo on their zero flap optics:

“I’ll now discuss our 3 most recent product additions, where we’ve made meaningful progress since their announcement last year.

At a high level, these products significantly expand our total addressable market by extending Credo’s reach across the full spectrum of connectivity links inside the data center. I’m pleased to report that our progress with Zero Flap Optics is ahead of schedule. As noted in our recent press release, we began production shipments with our first Neocloud customer Tensor Way. In addition, we’re in qualification with 3 additional customers, including hyperscalers and Neocloud operators.

At a high level, data centers today face major challenges with extended cluster bring up times and uptime degradation created by the inherent link flat instability of commodity laser-based transceivers. Our zero flat optics were designed to address these challenges directly. Through tightly integrated hardware, optics, firmware and our pilot software with switch level SBK integration, Zero Flat optics delivered continuous like flat telemetry and autonomous detection and mitigation of potential link flat events before they impact the cluster.

This enables a step function improvement in network reliability. From a TAM perspective, Zero Flab optics allows us to address optical connectivity spanning any length within the data center. Based on strong customer traction, we now expect to see a significant production ramp beginning in first quarter of fiscal ’27 and continuing throughout the year. ”

The key here is the significant ramp throughout the year. Investors have worried Credo would get left behind as NVIDIA increasingly focused on optics, but Credo is making the argument they’ll see strong growth in other categories beyond AECs.

“As we look ahead to fiscal ’27, we expect sequential revenue growth in the mid-single digits, leading to more than 50% year-over-year growth.”

I might be reading this wrong, but it looks like the company’s CFO just forecast more than 50% growth next year. Right now Wall Street has 41% top-line growth modeled in Fiscal 2027, so that’s another material statement.

Credo’s call is starting. We’ll post some notes from it taht you can receive if you leave this page open or refresh it later.

Credo’s earnings call is set for 5 p.m. ET.

The good news is shares have rebounded slightly off the bottom. The bad news? They’re still down 10% despite solid earnings.

We’ll be listening to the call and will provide updates here.

As we’ve noted earlier, the call will likely be important as investors are most concerned about whether AECs will come under pressure and want more details on new markets Credo is expanding into. 

We’ll post updates on this live blog. If you want to receive them, simply leave the live blog open and new updates will appear automatically.

Bear Case: Validated or Busted?

With Credo down 10% after hours, here’s where the four main bear concerns stand tonight.

• AEC durability: Bears feared copper/AEC demand would fade as hyperscalers shift to optics. Not addressed tonight — management commentary on the call will be the real test.
• Gross margin compression: Bears warned margins would peak. Guidance of 65% non-GAAP gross margin next quarter, down from 68.6% this quarter, gives bears partial validation.
• Customer concentration: Heavy reliance on a handful of hyperscalers remains unchanged. Neither confirmed nor resolved tonight.
• Valuation at 96x P/E: Bears say any margin slip justifies a reset. Bulls counter that 272% revenue growth and a quarterly beat streak justify the premium.

The market sides with bears on margin trajectory, though the fundamental growth story remains intact heading into the call.

Credo shares are holding down about 12.5%. As we’ve noted, it seems like a pretty extreme reaction, but Credo shares remain under pressure as investors worry about the durability of their AEC business.

The main concern we noted earlier was gross margins slipping next quarter. However, this mostly appears to be a market that’s looking for any excuse to get out of this stock reacting to relatively minor concerns.

I’m looking at what the market could be reacting so strongly too and the only thing that stands out is gross margin guidance is 65% (Non-GAAP) at the midpoint.

That’s below 68.6% this quarter. Perhaps some of the sell-off is from this number, but it still feels fairly extreme.

I have to admit, I’m scratching my head why Credo is down so much after these numbers. They pre-announced and delivered slightly above the pre-announcement.

Sentiment has been very poor as Wall Street focuses on optics plays, but selling off on what seems like mostly already known information is bizarre.

Credo’s guidance calls for revenue this year between $425 million and $435 million.

That’s on the high side of their previous guidance for mid single digit growth next quarter.

And yet, the stock is down 13%. I don’t really understand this one or what anyone expected.

Credo’s earnings are out, here’s what they delivered:

• Revenue: 407.01 million
• EPS: $1.07

As a reminder, here’s what Wall Steet expected:

• EPS consensus: $0.94
• Revenue guidance (preannounced): $404 to $408 million
• Non-GAAP gross margin target range: 63% to 65%
• Average analyst price target: $208.69, implying roughly 84% upside from current levels

Shares are immediately down 7% despite the beat.

It’s past 4 p.m. and we expect Credo earnings to hit any moment. As a reminder, simply leave this page open and new updates will post automatically.

Here’s the exact language from Credo’s preliminary Q3 guidance:

“Credo expects to report third quarter fiscal year 2026 revenue in the range of $404 million to $408 million, above the high-end of Credo’s previously announced third quarter guidance range of $335 million and $345 million.

Looking towards the end of fiscal year 2026 and into fiscal 2027, Credo expects sequential revenue growth in the mid-single digits leading to more than 200% year-over-year growth in the current fiscal year.”

Mid-single-digit growth would point to guidance for next quarter around $425 million in revenue at the midpoint. Estimates from Wall Street appear to be a little stale with Capital IQ listing expectations for $411 million next quarter.

As we noted earlier, reaction to Credo’s earnings will largely hinge more on management commentary. 

Credo’s stock is down 21% this year despite solid business momentum. After all, the company had $135 million in Fiscal Q3 revenue last year and just preannounced revenue for this Q4 that’s $406 million at the midpoint.

That’s absolutely incredible execution, so you might be wondering why Credo is down.

The short story is that investors are increasingly focused on optics while Credo’s bread-and-butter is active electrical cables. These cables have helped hyperscalers use copper in more places (cheaper than optics), but the fear is while they’re incredibly useful today, they could be surpassed in the coming years as hyperscalers move more to optics across scale up archtitecture.

Of course, Credo isn’t standing still. They’ve been developing a range of products that could see very large markets in the years ahead. We’ll be paying particularly close attention tonight to the company’s conference call to see what they say about many of these new market opportunities.