Credo ($CRDO) 24Q3, rapidly accelerating growth

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Credo Technology Group is a fabless semiconductor company specializing in high-speed connectivity solutions for data infrastructure markets. Their products, including Active Electrical Cables (AECs), retimers, and gearboxes, enhance data transfer efficiency and security in data centers, particularly those supporting artificial intelligence applications. Major clients such as Microsoft, Amazon, and Tesla utilize Credo’s technologies to improve communication among servers and networking equipment.

Credo’s FY25Q2 earning report on Dec 2nd exceeded every analyst’s expectation by a huge margin. Share price increased by 60% this week so far. There’re still a lot of things for me to unpack, but I’d love to share some brief numbers from the earning report.

In Q2, we reported revenue of $72 million, up 21% sequentially and up 64% year-over-year and well above the high end of our guidance range. Our product business generated $69.1 million of revenue in Q2, up 21% sequentially and up 88% year-over-year. Notably, our three main product lines grew double digits sequentially to achieve new, record revenue levels.

The previous guidance was between $65.0 million and $68.0 million, so ~5.9% beat on the upper bound guidance.

Now turning to our guidance. We currently expect revenue in Q3 of fiscal '25 to be between $115 million and $125 million, up 67% (!!!) sequentially at the midpoint. We expect Q3 non-GAAP gross margin to be within a range of 61% to 63%. We expect Q3 non-GAAP operating expenses to be between $42 million and $44 million. We expect Q3 diluted weighted average share count to be approximately 184 million shares.

And so, we expect to see continued growth over time. Although we’re not able to really give specific guidance for fiscal '26, we do expect the growth to be kind of on the order of, what expectations have been in the past, and that being on kind of the order of 50% annually.

So the company just had 21% QoQ growth, is guiding for another 67% QoQ growth, and is even hinting 50% YoY growth for the next FY year, two quarters before FY ends. What a strong momentum of growth!

I highly recommend reading the earning results.
Press release: https://investors.credosemi.com/news-releases/news-release-details/credo-reports-second-quarter-fiscal-year-2025-financial-results
Earning transcripts: Credo Technology Group Holding Ltd (CRDO) Q2 2025 Earnings Call Transcript | Seeking Alpha

Luffy

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Interesting; $CRDO seems to have inflected since it was last discussed in @wpr101 's $ALAB introduction:

https://discussion.fool.com/t/introducing-astera-labs-alab/

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Thanks for calling this one out, I actually started a position earlier today as I came across the results this morning.

The guide they are giving is absolutely stunning! Like you mentioned it’s 67% sequential growth AND adj operating expenses are guided for +10% sequentially. I thought initially this company may be a runner up to ALAB, but it seems they are accelerating growth like crazy too.

My biggest unknown is why the company is HQ is the Caymen Islands? I believe the founders are ex-Marvell employees, also a legacy competitor.

It seems like the demand for these products that Credo and Astera are producing has incredible demand right now.

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Adding notes from the press release and earnings call,

Guides vs Actuals
Revenue 65-68M → 72M
Adj gross margin 62-64% → 63.6%
Adj OpEx 36-38M → 37.6

Next quarter guide
Revenue 115-125M (+67% qoq)
adj gross margin 61-63%
adj OpEx 42-44M (+10% qoq)

  • quarter was our most successful to date
  • record revenue across all three product lines
  • uptick in shipments
  • suite of differentiated and innovative solutions: Ethernet connectivity solutions, active electrical cables (AECs), optical DSPs, line card retimers, SerDes chiplets
  • developing suite of PCIe connectivity solutions including retimers and AECs
  • expertise is SerDes (serialize & deserialize, coverts between parallel and serial data formats)
  • “we’ve anticipated an inflection point in our revenues… this turning point has arrived… even greater momentum than initially projected”
  • record quarter for AEC revenue driven by strong demand for our top two customers and emerging hyperscalers
  • AECs outperform laser based optics, lengths of up to seven meters
  • trusted partner embedded in the network architecture plans of our customers
  • second half revenue will be driven by AEC products
  • achieved record optical DSP revenues
  • in October introduced Gen 6 and Gen 7, including 1 terabit per second PCIe AEC
  • top three end customers were each greater than 10% revenue in quarter (Microsoft, AWS, Meta)
  • had another four customers that were 5-10% of revenue
  • OpEx slightly higher this quarter due to higher R&D spend
  • adj operating income 8.3M vs 2.2M qoq
  • adj operating margin 11.5% vs 3.7% qoq, sequential increase of 780 bps
  • ending inventory 36.3M, up 4.8M sequentially
  • we expect double digit sequential growth from Q3 to Q4 (two quarters away)
  • from fiscal year 2024 to 2025 we expect more than 100% growth
  • expect adj OpEx to grow at less than half the rate of revenue
  • “in the last 90 days, we’ve seen a couple of projects come together with a stronger forecast than we expected”
  • we view this market and this product family as a system level solution
  • unique customized SKUs, turn them around and deliver very high quality quickly
  • in the “pole position” with different hyperscalers
  • analyst, “the guidance is well, well above Street expectations”
  • we’ve got great design activity, great qualification across multiple customers
  • overall opportunity relates to the sheer number of GPUs being deployed, we saw in the last 90 days that is increasing
  • pretty high consumption rate within our customers
  • analyst, “large GPU vender, they obviously chose a very unique system architecture for their latest product”
  • Microsoft remained a 10% customer during the quarter
  • second AEC hyper scaler will really be the driver for the second half inflection point in the year, will become a larger percentage of revenue
  • separate “emerging hyperscaler customer” was 14% of revenue
  • quarter really demonstrated significant revenue diversification from both a customer and product perspective
  • really focused on serving US hyperscalers, including Oracle in that group
  • companies like xAI and Omniva, relationships with Microsoft and Amazon
  • xAI is buying specifically in the ZeroFlap category
  • whether it’s Credo AEC or one of our competitors, “there’s no question in my mind that all the US hyperscalers will be using AECs”
  • we’re definitely seeing our hyperscaler customers have the desire to build from multiple sources (why Astera and Credo can coexist well)
  • we’ve got more than 20 SKUs that we just developed in the last several quarters from different types of hardware customization and firmware customization
  • IP licensing will be smaller part of revenue over time, will treat that business strategically

What an amazing quarter. The hyperscalers must be buying huge amounts of the products to be able to raise the guidance like this. I like that revenue is diversifying among the product set and amongst the customers. There is a lot less risk as they onboard a diverse set of hyperscalers and they’ve already got Meta, AWS, Microsoft and Oracle on board.

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