Credo Technology Group Holding Ltd. (NASDAQ:CRDO) stock fell Wednesday despite better-than-expected fiscal first-quarter results, as shrinking margins, rising costs and lofty investor expectations overshadowed the earnings and revenue beats.
Credo shares had gained 43.6% this year through Tuesday’s close. That rally may have also left the stock vulnerable to profit-taking.
After Tuesday’s closing bell, Credo reported fiscal 2027 first-quarter revenue of $479 million. That beat the analyst estimate of $471.77 million. Adjusted earnings of $1.20 per share topped the $1.17 consensus.
Revenue increased 10% from the prior quarter and 115% from a year earlier. It exceeded the high end of Credo’s guidance. The period also marked its seventh straight quarter of triple-digit annual growth.
Margins Narrow As Costs Surge
GAAP gross margin fell to 64.5% from 68.2% in the prior quarter. It was also down from 67.4% a year earlier.
GAAP operating income rose to $120.7 million from $60.7 million a year ago. However, it declined from $155.8 million in the previous quarter.
The GAAP operating margin narrowed to 25.2%. That compared with 35.7% in the prior quarter and 27.2% a year earlier.
GAAP operating expenses more than doubled to $188.4 million from $89.6 million. Research and development spending climbed to $114.5 million from $52.4 million. Selling, general and administrative expenses rose to $73.9 million from $37.2 million.
Credo Profit More Than Doubles
Net income increased to $129.4 million, or 67 cents per share. That compared with $63.4 million, or 34 cents per share, a year earlier.
Adjusted net income surged 140% to $236.3 million. Adjusted operating income rose to $230.6 million from $96.2 million. The adjusted operating margin reached 48.2%.
Operating cash flow totaled $90.2 million, while free cash flow reached $82.9 million. Credo ended the quarter with $764.3 million in cash, cash equivalents and short-term investments.
AI Demand Drives Connectivity Growth
Credo said rising AI infrastructure investment continues to fuel demand. Larger computing clusters, faster data rates and more complex networks are creating opportunities across optical and copper products.
The active electrical cable business remains Credo’s largest segment. Growth came from deeper ties with five hyperscalers, rising demand from neo-cloud companies and the shift toward 200-gig-per-lane and 1.6-terabit ports.
Optical digital signal processor revenue reached a first-quarter record. Credo expects its first 1.6-terabit DSP revenue later in fiscal 2027.
The company also secured two major design wins for next-generation products. Those projects should ramp in fiscal 2028, although some activity could begin late in fiscal 2027.
Following its DustPhotonics acquisition, Credo recorded its first silicon photonics photonic integrated circuit revenue. The company expects its 800-gigabit and 1.6-terabit transceiver products to ramp.
Near-package optics design wins should begin ramping in fiscal 2028. Meanwhile, Zero Flap Optics has started production shipments. Credo plans additional 800-gigabit and 1.6-terabit ramps during fiscal 2027.
The retimer business also posted record first-quarter revenue. Screaming Eagle led demand at 100 gigabits per lane, while Blue Heron began contributing at 200 gigabits per lane.
Credo Issues Strong Outlook
For the second quarter, Credo expects revenue of $525 million to $535 million. That topped the $515.79 million analyst estimate.
The company projected an adjusted gross margin of 67% to 69%. It expects its full-year adjusted gross margin to remain broadly in line with fiscal 2026.
Credo expects ZeroFlap Optics, silicon photonics PICs and optical DSPs to each contribute more than $100 million in fiscal 2027. Together, those businesses should generate more than $600 million in fiscal 2027 optical revenue.
The company also expects fiscal 2027 total revenue growth of more than 85%.
Credo’s Omni Connect SerDes and Weaver gearbox products target rising memory bandwidth and capacity needs. The opportunity is especially large in AI inference systems. Credo sees potential content worth thousands of dollars per GPU, with revenue expected from fiscal 2028.
CRDO Price Action: Credo Technology Group shares were down 8.00% at $190.10 during premarket trading on Wednesday, according to Benzinga Pro data.
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