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Credo Technology Group Holding Ltd (CRDO)·Q1 2026 Earnings Summary

Executive Summary

  • Credo delivered a breakout Q1 FY26: revenue $223.1M (+31% q/q, +274% y/y) and non-GAAP diluted EPS $0.52; GAAP gross margin 67.4% and non-GAAP gross margin 67.6% . Versus S&P Global consensus, revenue beat by ~17% and EPS beat by ~44% (see Estimates table; S&P Global)*
  • Q2 FY26 guidance calls for revenue $230–$240M and non-GAAP gross margin 64–66%; OpEx (non-GAAP) $56–$58M . Management also lifted full-year outlook tone: from “>85% y/y growth and >$800M” (prior quarter) to “~120% y/y growth” for FY26 .
  • Strategic momentum: three hyperscalers each >10% of revenue; a fourth hyperscaler contributed first material revenue in Q1 with further ramp expected this year . AEC adoption continues to expand to rack-to-rack use cases, with management emphasizing reliability and power advantages vs. optics .
  • Watch items: EBITDA tracked below S&P consensus in Q1 (mix; see table; S&P Global)*; management noted gross-margin variability from product mix (not tariffs) and guided Q2 GM below Q1’s peak despite scale benefits .

What Went Well and What Went Wrong

  • What Went Well
    • Record top and bottom line: revenue $223.1M; non-GAAP net income $98.3M; non-GAAP operating margin 43.1% (up from 36.8% q/q) .
    • Hyperscaler traction broadened: three customers >10% each; fourth hyperscaler saw first material revenue with expected growth through the year .
    • Clear product differentiation: “AECs … up to 1,000 times more reliable and consume half the power,” expanding TAM from intra‑rack to rack‑to‑rack deployments .
  • What Went Wrong
    • EBITDA below S&P consensus despite strong revenue/EPS beats (see Estimates table; S&P Global)*; mix expected to pressure near‑term gross margin to 64–66% in Q2 .
    • Customer concentration remains meaningful (largest 35%, second 33%, third 20% of revenue), though improving from prior quarter .
    • Inventory increased to $116.7M (up ~$26.6M q/q) to support ramps; a necessary build but a balance‑sheet watch item .

Financial Results

Headline P&L and Margins (GAAP and non-GAAP)

MetricQ1 FY2025 (Aug 3, 2024)Q4 FY2025 (May 3, 2025)Q1 FY2026 (Aug 2, 2025)
Revenue ($M)$59.7 $170.0 $223.1
GAAP Gross Margin %62.4% 67.2% 67.4%
Non-GAAP Gross Margin %62.9% 67.4% 67.6%
GAAP Net Income ($M)$(9.5) $36.6 $63.4
Non-GAAP Net Income ($M)$7.0 $65.3 $98.3
GAAP Diluted EPS ($)$(0.06) $0.20 $0.34
Non-GAAP Diluted EPS ($)$0.04 $0.35 $0.52

Q1 FY26 Actual vs S&P Global Consensus (Wall Street)

MetricConsensus*ActualSurprise
Revenue ($M)190.6*223.1 +$32.4M (~+17.0%)*
Non-GAAP Diluted EPS ($)0.361*0.52 +$0.16 (~+44.2%)*
EBITDA ($M)75.1*66.2*-$8.9M (~-11.9%)*

Values marked with * are from S&P Global; no primary-document citation is available.

Revenue Mix (Segment Detail)

Revenue Component ($M)Q1 FY2025Q4 FY2025Q1 FY2026
Product Sales$57.3 $164.5 $217.1
IP License$2.4 $4.2 $6.0
Total$59.7 $170.0 $223.1

KPIs and Balance Sheet Highlights

KPIQ1 FY2026
10% customers (count)3
Largest customer as % of revenue35%
Second largest as % of revenue33%
Third largest as % of revenue20%
Non-GAAP Operating Margin %43.1%
Cash + Short-term Investments ($M)$479.6
Cash from Operations ($M)$54.2
Free Cash Flow ($M)$51.3
Inventory ($M)$116.7

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Revenue ($M)Q2 FY2026N/A$230–$240 New
GAAP Gross Margin %Q2 FY2026N/A63.5–65.5 New
Non-GAAP Gross Margin %Q2 FY2026N/A64.0–66.0 New
GAAP OpEx ($M)Q2 FY2026N/A$96–$98 New
Non-GAAP OpEx ($M)Q2 FY2026N/A$56–$58 New
Diluted Wtd Avg Shares (M)Q2 FY2026N/A~190 New
FY Revenue Growth (y/y)FY2026“>85%, >$800M” “~120%” Raised
Non-GAAP Net MarginFY2026“Approach 40%” “~40%” Maintained

Earnings Call Themes & Trends

TopicQ3 FY2025 (Q‑2)Q4 FY2025 (Q‑1)Q1 FY2026 (Current)Trend
AEC adoption and AI build‑outInflection; record revenue; AEC-led ramp AEC broadening to rack‑to‑rack; reliability/power vs optics 100G/lane ramps; fourth hyperscaler revenue; expanding rack‑to‑rack Strengthening
Optical DSP roadmap (800G/1.6T)—800G LRO ~9W; 3nm 200G/lane 1.6T in pipeline Optical on track to double; Bluebird 1.6T DSP announced (3nm) Accelerating
Supply chain / tariffs—Tariffs manageable; geographic flexibility Q2 guide assumes current tariff regime; mix drives GM variability Monitored, manageable
Customer diversification—61%/12%/11% top 3; 2 more hyperscalers in 2H FY26 35%/33%/20% top 3; fourth hyperscaler to >10% for FY26 Improving
Regulatory/legal (AEC IP)——Patent settlements with Amphenol, Volex; licensing agreements Risk reduced
R&D/CapEx focus—CapEx to double for 3nm tapeouts >50% of R&D OpEx tied to optical projects Investing behind optical/scale‑up

Management Commentary

  • “Demand for Credo's reliable and power efficient high speed connectivity solutions continues to ramp as hyperscalers and data center operators accelerate investments in AI driven infrastructure.”
  • “AECs … are up to 1,000 times more reliable and consume half the power [than optical] … virtually eliminate link flaps … boosting cluster reliability and productivity.”
  • “We are on track to secure PCIe design wins in calendar 2025 with production revenue expected in calendar 2026.”
  • “We moved to three nanometer [for 1.6T optical DSP] straight away due to power … we feel like we're in great shape … bringing it to production shortly.”
  • “As we move forward throughout fiscal year 2026, we expect sequential revenue growth in the mid single digits, leading to approximately 120% year over year growth.”

Q&A Highlights

  • Customer mix and diversification: Q1 top three customers were 35%, 33%, and 20% of revenue; fourth hyperscaler expected to surpass 10% for the full year, with continued diversification through FY26 .
  • Scale‑up protocols: Credo’s AEC/SerDes approach is protocol‑agnostic across 224G/lane for PCIe Gen6/7, UA‑Link, NVLink Fusion, and scale‑up Ethernet; design wins targeted in 2025 with production in 2026 .
  • Optical outlook: 800G LRO/full DSP traction near term; 1.6T transition to take longer than some expect; Bluebird 1.6T 3nm DSP positioned for upcoming ramps .
  • Margins and tariffs: GM variability driven primarily by product mix; Q2 GM guided below Q1 peak; current tariff regime embedded in outlook .
  • IP/legal: Settlements with Amphenol and Volex resolved AEC patent disputes via licenses, reducing legal overhang without changing market view or share goals .

Estimates Context

  • Q1 FY26 results significantly exceeded S&P Global consensus on revenue and non‑GAAP EPS, but trailed on EBITDA: revenue $223.1M vs. $190.6M*, EPS (non‑GAAP) $0.52 vs. $0.361*, EBITDA $66.2M vs. $75.1M* (see table above). Values marked with * are from S&P Global.
  • Q2 FY26 consensus revenue is ~$235.0M*; company guidance midpoint ($235M) is in line. Focus turns to execution on mix/gross margin and continued customer diversification in 2H. Values marked with * are from S&P Global.

Key Takeaways for Investors

  • Credo is executing through a multi‑quarter hyperscaler ramp with best‑in‑class AEC reliability/power advantages, driving outsized revenue and margin leverage; guidance implies continued mid‑single‑digit sequential growth through FY26 .
  • The FY26 growth narrative strengthened: management now targets ~120% y/y growth (up from >85%) with ~40% non‑GAAP net margin, supported by expanding hyperscaler engagement (fourth customer ramping; fifth expected later) .
  • Mix is the key near‑term GM swing factor; watch Q2 GM (64–66%) vs. Q1’s 67.6% non‑GAAP, and monitor AEC vs. optical/retimer contribution during the ramp .
  • Optical remains an emerging second growth pillar: near‑term 800G momentum and Bluebird 1.6T DSP positioning provide medium‑term optionality as 200G/lane transitions occur .
  • Customer concentration is improving but still material; continued diversification (and settlements reducing legal overhang) are positive de‑risking factors into 2H FY26 .
  • Near‑term trading setup: strong beats and an implicit full‑year raise in growth tone are supportive, but EBITDA under‑consensus and GM normalization could temper multiples; watch Q2 execution and any color on PCIe scale‑up design wins (S&P Global)*.
  • Medium‑term thesis: system‑level stack (SerDes IP + ICs + AECs + software) and protocol‑agnostic 224G/lane positioning in both scale‑out and scale‑up networks create multiple waves of TAM expansion through FY27+ .

Footnote: Values marked with * are retrieved from S&P Global.