CRDO 2nd Quarter FY2026

Investment Analysis Clubs Saul’s Investing Discussions
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Second Quarter of Fiscal Year 2026 Financial Highlights

  • Revenue of $268.0 million, grew by 20.2% QoQ and 272.1% YoY
  • GAAP gross margin of 67.5% and non-GAAP gross margin of 67.7%
  • GAAP operating expenses of $102.3 million and non-GAAP operating expenses of $57.3 million
  • GAAP net income of $82.6 million and non-GAAP net income of $127.8 million
  • GAAP diluted net income per share of $0.44 and non-GAAP diluted net income per share of $0.67
  • Ending cash and short-term investment balance of $813.6 million

Guidance Third Quarter of Fiscal Year 2026

  • Revenue 335 million to 345 million
  • GAAP Gross Margin 63.8-65.8%
  • GAAP operating Expense 116-120 Million
  • non-GAAP operating Expenses 68-72 Million

Key Information from Conference Call

  • 4 customers above 10% revenue and expect a 5th to join them
  • ALC (Active LED Cables) TAM is twice as large as AEC (Active Electronic Cable) TAM [5-10B]
  • 3 new product lines in optical space
  • Omnionnect transports memory data and competes with HBM by allowing memory to be moved up to 10 inches away. This increases reliability as well as lift physical limitations on density.
  • Most sales are in 50 gig per lane but seeing transition to 100 gig per lane product and future sales in 200 gig per lane.

“As a result, we expect our non-GAAP net margin to be approximately 45% for fiscal year '26. This should translate to net income more than quadrupling year-over-year.”

Thoughts

They are performing extremely well. They are guiding 28% QoQ growth at the high side and in the last year they have beat their high side guidance by an average of 9%. They do seem a little expensive with a P/E of 154 but their non-GAAP run rate P/E is 64. A 2.4 ratio is a very promising sign that the company has been accelerating its bottom line growth.

Drew
Long CRDO

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I had Chat GPT do a comparative analysis of CRDO and ALAB’s results this quarter. Not sure why ALAB hasn’t had a similar response to its excellent earnings (maybe not as excellent as CRDO’s, but still splendid) and why it reversed hard this morning from 181 to 151 within a little over an hour. :magnifying_glass_tilted_right:

Comparative Strengths & Differences

Metric / Feature CRDO (Credo) ALAB (Astera Labs)
Revenue (latest quarter) US$ 268.0M (higher) US$ 230.6M
YoY revenue growth +272% YoY (very strong) +104% YoY (strong)
Profitability GAAP net income of US$ 82.6M; non-GAAP EPS US$ 0.67 (turnaround from prior net loss) Net income US$ 91.1M; EPS US$ 0.49–0.50 (continuing profit)
Gross margin ~67.5% (good margin) ~76.2% (very high margin)
Business momentum Sharp inflection — scaling fast with AEC shipments to hyperscalers Steady growth — benefiting from demand for AI-connectivity chips, PCIe, fabric switches
Cash / Balance-sheet ~US$ 813.6M cash + short-term investments — strong liquidity Reported ~$1.13B cash (most recent balance) and modest debt-to-equity — healthy position Yahoo Finance+2Yahoo Finance+2

Interpretation

  • CRDO shows a dramatic acceleration: massive revenue growth and a swing from loss to profit. That suggests it’s rapidly scaling its connectivity-hardware business — likely driven by surging demand from AI/hyperscale data centers.

  • ALAB, while growing less explosively, rests on strong margins and continues to deliver stable profitability, indicating mature product adoption and solid execution in delivering semiconductor-based connectivity solutions.

  • The higher gross margin for ALAB suggests its product mix (semiconductor connectivity, retimers, fabric switches) may carry higher margin than CRDO’s — which seems to rely heavily on volume of Active Electrical Cables (AEC).

  • CRDO appears more “high growth / rapid scale-up,” while ALAB appears more “high-margin, stable growth” — different value propositions in the AI infrastructure supply chain.

:bullseye: What This Means for Investors or Observers

  • If you are looking for fast growth and upside potential in AI-infrastructure demand, CRDO might appeal more — it’s rapidly scaling and benefiting from surging data center connectivity demand.

  • If you prefer high margin, proven execution, and steadier profitability, ALAB offers a more conservative but solid base, potentially less volatility and more consistent performance.

  • Both companies benefit from the broader AI / cloud-infrastructure boom — but they are playing different roles: CRDO as a high-volume cable/connectivity supplier; ALAB as a semiconductor-centric, margin-optimized connectivity solutions provider.

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Alab pulled back on the AMD-Oracle announcement for a datacenter. It seems like AMD is doing a large portion of the datacenter.

I am not sure why that is pullback worthy because AMD doesn’t make retimers.

Drew

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I guess TD Cowen lowered ALAB to a HOLD today and lowered price target from 225 to 170. I’ve been adding all day and doubled my position.

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I have to say, CRDO’s collapse after an incredible ER seems to be presenting us with a great buying opportunity. Again, this company showed 272% YOY revenue growth, 20% sequential, 68% gross margins and a tight balance sheet with $813 in cash and ST investments. It hit $213 after earnings and is now $70 a share cheaper! I’ve been DCA’ing every $10 decline here as well as ALAB and IREN. I mean, CRDO is a perfect example of stock that this board should follow. Am I wrong?

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Ive not followed Credo for a while, but all of my AI stocks (which is all of my stocks apart from 1) dropped a lot yesterday. It’s all related to the results of Broadcom and Oracle earlier this week. Personally I think the drop is overdone, but maybe after the incredible year we’ve had with these stocks it was to be expected. I’ve made no changes to my portfolio and I’m continuing to hold.

Jonathan

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Hi,

Just want to add that Crdo is guiding ~28% QoQ growth next qtr.

Best,

Pablo Ahlers

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The market is on edge for when the AI bubble will burst and at any signs investors are looking to hit the door running. Broadcom gave 2 signs that they will see profitability growth slow down. 1 they said non-AI revenue will slow down. 2 they announced that their AI revenue is lower margin than non-AI revenue. That was enough to spark the sell off on Friday.

Reasons I think this is just market overreaction. Broadcom said non-AI revenue is slowing, not AI-revenue is slowing. Broadcom predicts about a 1% drop in gross margin from 78%. Its not good news that the gross margin is dropping but its not like its a substantial change in gross margin.

Some of our AI companies have seen some gross margin contraction and others have seen some expansion as they deliver new products. I think its important to follow trends but understand that margins will defiantly fluctuate as this field matures.

Drew

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In re-evaluating my CRDO holding I went back to review their guidance in the earnings transcript and this caught my attention:

“As we look toward the end of fiscal year '26 and into fiscal '27, we expect sequential revenue growth in the mid-single digits…”

Although they are guiding 27% sequential growth for the current (3rd) quarter, they are warning of a dramatic slowdown in QoQ growth, to the mid single digits, for Q4 and after. With a forward EV/S of 20.8 and revenue growth falling to those levels, I don’t think there is any rational chance of upside. This isn’t recurring revenue either. They have to sell all those cables again and again (a piece of Sauldom). They gave me all the warning I need and I sold my position.

I would love to hear other’s thoughts.

Best,

Loofox

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With Credos current guide for Q4 the YoY revenue growth for net year would still be substantial. Here’s the full quote from the transcript.

“These expectations are based on the current tariff regime, which remains fluid. As we look toward the end of fiscal year '26 and into fiscal '27, we expect sequential revenue growth in the mid-single digits, leading to more than 170% year-over-year growth in the current fiscal year.”

Later on in the transcript they were asked more about this:

“Yes. We – so in my prepared remarks, I specifically said mid-single digits revenue growth sequentially through fiscal '27. So that’s the expectation that we’ve set. We set that expectation probably 3 or 4 quarters ago as well if you go back and look at things, and we’ve outperformed that. So sure, things could change, but we’re not setting any expectation that’s different from…”

CRDO can’t keep growing at this pace and will slow down. I think they are guiding very conservatively (as they did previously) but trying prepare people for the eventual slow down. If they grew 5-7% sequentially next year that would still be between 21%-31% for the year which on the low end would be very concerning and on the high end acceptable.

Credo continuously crushes expectations and guidance so I’m going to continue holding until that changes

Makylejoth

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Actually they made the same guidance for the quarter just reported (Q2) in their Q1 release and then delivered 20% sequential growth.

Either the guidance is complete BS on a level beyond “playing the game”, or they are genuinely expecting/forecasting a massive slowdown for whatever reason or they have zero visibility/are asleep at the wheel.

None of these are good reasons.

Ant

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Something additional I picked up on in Credo’s last earnings was this analyst question and answer,

I think looking at the 10-K you guys put out, you list Bizlink as sort of your sole provider of AEC cable manufacturing. And obviously, the forecast here is getting pretty big pretty quickly. How are you feeling about AEC supply?

The seems accurate from the 10-K which lists BizLink as the sole manufacturer, from their latest 10-K,

Package, Assembly and Testing: Upon the completion of processing at the foundry, we use third-party contractors for packaging, assembly and testing, including Amkor Technology Inc. (Amkor) and Advanced Semiconductor Engineering, Inc. (ASE) for packaging our IC products, King Yuan Electronics Company (KYEC) and Sigurd Microelectronics Corp. (Sigurd) for testing our IC products and BizLink Technology, Inc. (BizLink) for manufacturing our AEC products.

However, if you go back and look at the prior 10-K in 2024 they had listed two manufacturers in their 10-K where that last part of the text used to read,

BizLink Technology, Inc. (BizLink) and Cheng Ui Precision Industry (Foxlink) for manufacturing our AEC products.

Both Bizlink and Foxlink are Taiwan based companies with symbols 3665 and 2392. Bizlink was doing 604M of revenue in the latest quarter and Foxlink 868M last quarter. Bizlink looks to be growing though and better profitability + balance sheet.

Still it is not great to see the company going from two manufacturers down to one for their main product line. It is possible Bizlink may have been getting them better terms. At the same time going down this rabbit hole makes you realize this business is dependent on one company in Taiwan for their own business. I’m not sure how easily it would be to switch manufacturers, especially at scale, but this is also a risk to a lot of the semiconductors with manufacturing.

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Meaning, this isn’t necessarily something unique to CRDO? I looked at the transcript and the answer they gave to the AEC supply question you clipped, and though I didn’t understand the answer, it sounded like they were not worried…possibly they were just saying that their current inventory (maybe also future delivery schedule) gives them confidence that there won’t be any near-term issues.

Anyway, is this a yellow flag for CRDO specifically, or just something to monitor for any semiconductor company? (I mean perhaps I could even make the case that NVDA is likewise dependent on TSM.)

Bear

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This is a good question to ask. There are many choke points in the entire supply line regarding nearly all semi and related companies from materials to finished product. Very frequently, these are highly capital-intensive businesses to start and require highly-specialized and sophisticated processes, machinery, and staff. ASML, for example, is a one-of-a-kind business that would cripple the semi world if incapacitated. There is truly an international supply chain required for many of these products, so definitely not unique to CRDO in any way.

I highly recommend the book Chip War by Chris Miller for those more interested in this area.

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The issue I am seeing here is they went from two manufacturers down to one, when most of the companies in the sector are diversifying supply chains. I do think the over reliance on Taiwan is an under-appreciated risk for the whole sector.

Seems like on the response from the CEO was they aren’t too concerned about AEC capacity, but said “the market in general is going to kind of quickly get to the point where we’re kind of almost self-regulated by foundry capacity.” Adding later, “I think it’s going to be really topical as we go through calendar '26”

He did add their products are on the older 12 nanometer technology which more manufacturers are capable to produce as opposed to the 3nm and 5nm technologies. This take also sounds optimistic that he said, “And so we feel pretty good about where we are just related to a situation where there’s an increasing demand across the board for wafer volume”

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@PaulWBryant Following up on the uniqueness of the single manufacturer for Credo on AEC cables, it does seem to be an issue that is more specific to Credo than to competitors like Astera for example.

Astera was at the Needham conference and explained this difference in their business models,

Analyst asked,

And then maybe just in case some in the room aren’t familiar with your go-to-market strategy versus that of Credo, you make the smart cable module, you provide firmware, you don’t build the full cable. Credo does vertically integrate and supplies the entire cable. What are the pros and cons of the 2 approaches?

CEO’s response,

Yes. So first of all, we are – both Credo and us are going after the same problem statement at the same time that we are addressing in different ways. The Credo approach is that they provide the whole cable, and there are some benefits of that. They can usually run faster because they only need to work with one cable vendor and they control the whole chain. The advantage of the approach that we have is that we provide the supply chain diversity that our customers require.

So when you want to go from 10,000 cables, maybe 100,000 cables to millions of cables, which is really the demand for some of these larger hyperscalers, you want to have a diversified supply chain. And this is where our solution shines because we build the smart cable module, which is on either end of the cable for those of you not familiar but this is built to the exact specification of the hyperscaler. They know all of the components that go in there, including the DSP that comes from Astera, but also all of the power components, the EEPROMs and this and that. And more importantly, all of the security, the firmware upgrade, all of those capabilities are controlled by the hyperscaler. So now the hyperscaler does the matchmaking and says, okay, I have qualified this smart cable module from Astera, cable vendor 1, cable vendor 2, please build this cable for my application #1.

And they might go to cable vendor # 3 and cable vendor # 4 for another application. So they get to have full control of their supply chain. There is no margin stacking, and they don’t need to requalify the cable for every application. So for the hyperscaler, there is a huge advantage. And as Astera, we service hyperscalers.

So that’s why we evolved with this model, and we feel very comfortable and confident that over time, this will be successful.

Also adding some relevant details from Needham what Astera said about copper, a market concern which seems to be putting pressure on the stock price of Credo and Astera,

Yes. So at the highest level, CPO is a net increase in TAM. CPO, optical solutions are a lot more expensive than copper solutions. So if the – as the world shifts to optical, it is good for anybody who’s playing in the optical solution, and we’ll absolutely be playing in there as well. That is also a reason why I believe that our customers don’t want to go to optics because they have to pay a lot more for optics, including in power and in cost.

So overall, it is up to the industry, including folks like us to deliver a reliable low-cost solution that enables optics and therefore, allows disaggregation of these racks. And we are already actually in close engagement with our customers on when this transition is supposed to happen, when they would like to deploy copper – sorry, optical, and we will be right there. Now to your second point, you cannot deploy optics in isolation. So you cannot say I have an optical engine and now you can deploy optics. You must have a switch that’s capable of talking optics and you should have an XPU that’s capable of talking optics.

And it is our plan to work an optical engine to create an optical engine that will enable Scorpio family to be – to have optics I/O as in addition to a copper-based IO. We announced the acquisition of aiXscale, which is a company that does the packaging piece, which we believe is the most critical piece to scale optics. This allows very efficient connection of optical fibers into the silicon photonics chip. Now unlike Celestial, for example, where they have chosen to go down a particular path of silicon photonics, we are open to multiple solutions. If we need to work with, let’s say, a Celestial type of a solution, we can happily work with that.

Lastly, Credo was also a presenter at the Needham conference and looking to check out the details there soon.

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Credo at the Needham conference had some strong counter points when asked about their business model versus Astera’s,

  • “We’re really the only company in the industry that is taking ownership at the system level”
  • Focused on delivering first, qualifying first, ramping first
  • “Having the ability to develop 20 SKUs in parallel and qualify those 20 SKUs in parallel internally before we go into a customer call”
  • “The supply chain management part of it is also a huge advantage”
  • “If you’re going to do the whole job, you’ve got an advantage over a company that’s going to design a chip and basically sell that chip and somewhat of a reference design”
  • “The way we’re working with customers has proven out to be ultimately cause us to be preferred”

Some additional notes on Credo from the conference,

  • xAI first tried optical solutions with 18 racks, replaced with copper as copper reliability is 1000x optical, linkflaps on optical take down a cluster
  • Oracle systems 50M+ apart, had to build optical solution for them called Zero Flap Optics, goal here is reliability with distances up to 2 KM
  • Breakthrough for the company: owning the product at a system level
  • 3 new products: Active Micro-LED ALC cables, Weaver chiplet for memory, Zero Flap Optical Transceivers
  • ALCs can reach 30M vs 5M for AEC cables, would cover any application in a different row
  • ALCs come with the same benefits of AEC cables but with longer length and thinner cables, AECs still preferred for short connections
  • ALCs at least double the TAM of AECs, but could canabalize some revenue
  • Seeing lots of opportunities outside of six hyperscalers, off the shelf solutions for scaling up the cluster
  • On AI market, demand is there, next 12 months strengthening demand
  • New companies that are emerging, starting to take material orders from the outside of the hyperscaler community
  • AEC potential 1.5 - 5 per GPU in the next-gen GPU systems
  • Market is big enough to support multiple players
  • Easy to get 12 month forecasts, some companies are giving 24+ month forecasts
  • New products in the space around 63 - 65% gross margin
  • Not commodity transceivers, not competing for those sockets
  • Uplift in ASP
  • Acquisition of Hyperloom was critical (October 2025 for 92M)
  • Weaver product, OmniConnect die to die interconnect architecture, memory fanout gearbox chiplet could be largest market opportunity 3-5 years from now
  • First customer for Weaver announced (seems this is a small company called Positron)
  • Well over 1K+ per system on first Weaver customer
  • Another market for Weaver is automotive, cannot have memory paging in and out
  • DDR5 to DDR6 could be accomplished by a gearbox
  • “Game changer”, SerDes in GPU design, gateway to all gearbox chips, we are going to make memory first then gearboxes, for scale out, then scale up, heading towards optics later, enables GPU design that is “future enabled”
  • October 2025 raised 750M at the money offering, gives strategic flexibility to the company

Overall I thought Credo did a really good job here explaining their vision, something I have been critical of them in the past. It is interesting to think about how Astera’s and Credo’s business models are quite a bit different, each having some pros and cons.

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