Q2 2025 Earnings Summary
- Credo is experiencing significant revenue diversification, with 7 customers each contributing more than 5% of revenue in Q2 , demonstrating broad-based adoption of its innovative solutions across multiple products and customers.
- Strong demand for Credo's Active Electrical Cables (AECs) is driven by increased GPU deployments in AI and data centers, leading to higher attachment rates per GPU; this is expected to drive continued growth into FY'26, with an expectation of around 50% annual growth.
- Credo is expanding relationships with all major US hyperscalers, expecting them to adopt its AECs and optical DSPs, which positions the company for significant future growth ; moreover, the company's technology advantages in high-speed connectivity make it well-positioned regardless of whether Ethernet or PCIe becomes the dominant standard.
- The company has significant customer concentration, with the second AEC hyperscaler representing 33% of revenue in Q2, and revenue from this customer decreased sequentially from $31 million in Q1 to $24 million in Q2, indicating potential vulnerability to fluctuations in orders from key customers.
- Growth in new technologies like 200-gig per lane optical DSPs is not expected to contribute significantly until fiscal '27, suggesting that near-term growth may be limited if current markets do not expand as expected.
- The company experiences unpredictable customer order patterns, with customers surging or decreasing orders without a linear pattern, making it challenging to forecast revenue and potentially leading to revenue volatility.
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Revenue | Q2 2025 | $65 million to $68 million | no current guidance | no current guidance |
Non-GAAP Gross Margin | Q2 2025 | 62% to 64% | no current guidance | no current guidance |
Non-GAAP Operating Expenses | Q2 2025 | $36 million to $38 million | no current guidance | no current guidance |
Diluted Weighted Average Share Count | Q2 2025 | 182 million shares | no current guidance | no current guidance |
Revenue | Q3 2025 | no prior guidance | $115 million to $125 million | no prior guidance |
Non-GAAP Gross Margin | Q3 2025 | no prior guidance | 61% to 63% | no prior guidance |
Non-GAAP Operating Expenses | Q3 2025 | no prior guidance | $42 million to $44 million | no prior guidance |
Diluted Weighted Average Share Count | Q3 2025 | no prior guidance | 184 million shares | no prior guidance |
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
Active Electrical Cables (AEC) | Q3 2024–Q1 2025: Strong demand driven by GPU deployments and AI applications, market leadership noted with record revenue and product launches ( ) | Q2 2025: Record AEC revenue, introduction of 800‐gig ZeroFlaps AECs, and continued strength from AI/GPU trends ( ) | Continued robust growth with enhanced product innovation and market leadership. |
Customer Diversification vs. Concentration Risk | Q3–Q4 2024 & Q1 2025: Emphasis on diversifying customers while noting significant revenue dependence on key hyperscalers and unpredictable order patterns ( ) | Q2 2025: Maintained diversified base (7 customers >5%) but still significant concentration with top hyperscalers, along with non-linear order patterns ( ) | Ongoing diversification efforts with persistent concentration risks; strategic mitigation remains critical. |
Optical DSP & PAM4 DSP Business Momentum and Delayed Ramp-Up of Emerging Optical Technologies | Q3 2024–Q1 2025: Strong momentum in optical DSP/PAM4 DSP with long development cycles and delays noted for emerging optical tech (e.g., 200G DSPs pending ramp-up) ( ) | Q2 2025: Record optical DSP revenue driven by 50/100-gig solutions; 200G optical DSPs still expected to ramp in fiscal ’27 ( ) | Sustained momentum in current product lines while contributions from new high-bandwidth tech remain delayed. |
IP Licensing Revenue Volatility | Q3 2024 & Q1 2025: Volatile IP licensing revenue (sometimes as low as 2% and below expectations), adversely impacting gross margins due to its high-margin nature ( )<br>Q4 2024: Higher IP contribution noted but with expected sequential decline ( ) | Q2 2025: IP licensing revenue is being recognized as a smaller percentage of overall revenue with less focus on margin impact ( ) | Volatility persists; diminishing IP share is reducing its adverse impact on overall margins. |
Gross Margin Improvements vs. Sustainability Concerns | Q3–Q4 2024 & Q1 2025: Improvement driven by scale and favorable product mix, though concerns were raised over one-time factors and shifting product mixes affecting sustainability ( ) | Q2 2025: Non‐GAAP gross margin improved sequentially (63.6%) but with guidance indicating slight near-term softening ( ) | Margins are improving due to scale, yet sustainability remains a cautious concern amid product mix shifts. |
AI Revenue Expansion & Doubling Potential | Q1, Q3 & Q4 2024: AI-driven revenue was a key growth lever, with Q4 noting potential to double AI-related revenue, driven by increasing density in AI clusters ( ) | Q2 2025: Reinforcement of AI as the primary driver with nearly 100% of AEC shipments tied to AI; expectations for 100%+ year-over-year growth ( ) | Enhanced bullish sentiment; AI remains the most critical growth catalyst with doubling potential. |
Hyperscaler Network Architectures & Strategic Partnerships | Q3 2024: Noted shift to Ethernet over InfiniBand; Q4 2024: Detailed strategic engagements and interoperability testing with hyperscalers ( ) | Q2 2025: No explicit discussion on architecture shifts, but continued focus on strategic customer collaborations and AEC leadership ( ) | Less direct commentary in Q2, yet underlying strategic partnerships and technology alignment remain steady. |
Heightened Competitive Pressures in the AEC Market | Q4 2024: Explicit mentions of competition from major players like Marvell and Astera; Q3 2024: General acknowledgment of a competitive landscape and emphasis on rapid market entry ( ) | Q2 2025: No specific competitor names mentioned; focus is placed on product differentiation and aligning with hyperscaler needs ( ) | Explicit competitive references have waned in Q2, though market pressures persist implicitly. |
Delayed Contribution from New Technologies (200G Optical DSPs) | Q3 2024: Mention of long qualification cycles delaying significant volume (expected closer to fiscal ’26) ( ) | Q2 2025: Reiterated that 200G optical DSPs will not contribute significantly near-term, with high-volume ramp anticipated in fiscal ’27 ( ) | Consistency in delay; near-term growth remains anchored in current tech while advanced solutions are deferred. |
Focus on Linear Receive Optics (LRO) Revenue | Q3–Q4 2024 & Q1 2025: Strong remarks on LRO’s growing adoption in 800G modules and positive customer traction, with no mention of decline ( ) | Q2 2025: No indication of a decline in LRO focus; overall commitment to both full DSP and LRO remains ( ) | Stable and positive focus on LRO revenue with ongoing momentum and no sign of decline. |
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Growth Outlook for FY '26
Q: What are the growth drivers for next fiscal year?
A: William Brennan indicated that they expect growth across all product lines, with the main driver in FY '26 being AECs. They anticipate continued growth over time, expecting it to be on the order of previous expectations—around 50% annually. -
Significant Q3 Upside
Q: What's driving the significant upside this quarter?
A: Brennan noted that in the last 90 days, a couple of projects came together with stronger forecasts than expected, particularly in AEC products. This reflects a surge in the sheer number of GPUs being deployed, happening a little stronger than expected. -
Customer Demand and Inventory
Q: Is there an inventory build or genuine demand?
A: Brennan stated they have good visibility into actual deployments and consumption rates. They are seeing high consumption within customers, with little inventory build-up at logistics partners. -
Increasing AEC Attach Rates
Q: Is the ratio of AECs per GPU increasing?
A: Brennan observed a trend toward a higher ratio of AECs per GPU, driven by different architectures and the need for faster lane speeds. While this contributes to growth, it's primarily tied to strong design and qualification activity across multiple customers. -
Competitive Landscape and Second Sourcing
Q: How do customers view second sourcing in AECs?
A: Brennan acknowledged that hyperscaler customers desire multiple sources. Credo aims to be first in delivering samples, qualifications, and ramping production. Their ability to offer customized solutions positions them strongly against competitors. -
Optical DSP Growth Prospects
Q: How will optical DSPs impact growth?
A: Brennan expects near-term growth to be driven by 50G and 100G per lane designs. They are excited about their 200G per lane optical DSPs but anticipate that market to develop in fiscal '27. -
Hyperscaler Customer Penetration
Q: Are you shipping to all major hyperscalers?
A: Brennan stated they have open relationships with Microsoft and Amazon and are making progress with other U.S. hyperscalers. They expect all U.S. hyperscalers to consume AECs over time, representing further growth opportunities. -
Licensing Revenue Visibility
Q: How visible is your licensing revenue?
A: Brennan emphasized they are fundamentally a product company, with IP licensing becoming a smaller percentage over time. The licensing business is somewhat lumpy due to revenue recognition rules. -
Product Diversification
Q: Are top customers concentrated in AECs or diversified?
A: Daniel Fleming noted that while top 10% customers are largely in AECs, additional customers contributing over 5% of revenue are broadly based across AECs, Optical DSPs, and line card retimers. -
Back-End Networking Trends
Q: Will the back end move towards Ethernet or PCIe?
A: Brennan said they are agnostic about the market's direction but noted that faster speeds favor their products. They believe advantages seen in Ethernet will apply to PCIe as speeds increase to 64G and 128G per lane.