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    CRDO
    Earnings call· Nov 2025(Q2 FY26)

    Credo Technology Group Holding Ltd CRDO

    Dec 1, 2025 Source

    Executive summary

    Credo Technology Group Q2 FY26 — Record Revenue and New Growth Pillars

    Credo Technology Group reported record Q2 FY26 results, driven by strong demand for its AEC products from hyperscalers building AI clusters. The company also unveiled three new growth pillars—Zero Flap optics, ALCs, and OmniConnect gearboxes—significantly expanding its total addressable market. While forecasting continued strong revenue growth, management anticipates a sequential increase in operating expenses and a slight moderation in gross margins for Q3.

    Highlights

    5

    • Record revenue of $268 million, representing 20% sequential growth and an extraordinary 272% increase year-over-year.

    • Non-GAAP gross margin reached a robust 67.7%, exceeding the high end of guidance.

    • Generated approximately $128 million of non-GAAP net income, a record high and 30% sequential increase.

    • AEC product line grew healthy double digits sequentially, achieving new record revenue levels based on substantial year-over-year growth.

    • Added 3 entirely new growth pillars (Zero Flap optics, ALCs, OmniConnect Gearboxes) significantly expanding total addressable market to over $10 billion.

    Concerns

    3

    • Free cash flow was $38.5 million, down from $51.3 million in the prior quarter due to higher CapEx investments.

    • Q3 non-GAAP gross margin is guided lower to a range of 64% to 66% from 67.7% in Q2.

    • Q3 non-GAAP operating expenses are expected to increase significantly, between $68 million and $72 million, up 22% sequentially at the midpoint.

    Guidance & targets

    17
    CategoryTargetConfidence
    Q3 FY26 Revenue
    $335 million to $345 million
    high materiality
    High
    Q3 FY26 Non-GAAP Gross Margin
    64% to 66%
    medium materiality
    High
    Q3 FY26 Non-GAAP Operating Expenses
    $68 million and $72 million
    medium materiality
    High
    Q3 FY26 Diluted Weighted Average Share Count
    approximately 194 million shares
    low materiality
    High
    FY26 Revenue Growth
    more than 170% year-over-year growth
    high materiality
    High
    FY26 Top 4 Customers Growth
    grow significantly year-over-year
    medium materiality
    High
    FY26 Fourth Customer Revenue Contribution
    surpassing the 10% revenue threshold for this fiscal year
    medium materiality
    High
    FY26 Non-GAAP Operating Expenses Growth
    increase year-over-year by approximately 50%
    medium materiality
    High
    FY26 Non-GAAP Net Margin
    approximately 45%
    high materiality
    High
    FY26 Net Income Growth
    more than quadrupling year-over-year
    high materiality
    High
    FY27 Sequential Revenue Growth
    mid-single digits
    high materiality
    Medium
    Zero Flap Optics Initial Revenue
    initial revenue in fiscal '27
    medium materiality
    High
    ALC Product Sampling
    sample the first ALC products to lead customers during our fiscal '27
    medium materiality
    High
    ALC Initial Revenue
    initial revenue ramping in fiscal '28
    medium materiality
    High
    OmniConnect Gearboxes Initial Revenue
    initial revenue in our fiscal '28 with significant scaling thereafter
    medium materiality
    High
    PCIe Design Wins
    on track for PCIe design wins in fiscal '26
    medium materiality
    High
    PCIe Production Revenue
    meaningful production revenue in fiscal '27
    medium materiality
    High

    Segment performance

    2
    SegmentRevenueYoYQoQMargin
    Product Business
    Generated $261.3 million of revenue in Q2, up 20% sequentially and up 278% year-over-year. Product non-GAAP gross margin was 66.8% in the quarter, up 18 basis points sequentially and up 469 basis points year-over-year.
    Non-GAAP Gross Margin: 66.8%Non-GAAP Gross Margin QoQ Change: up 18 bpsNon-GAAP Gross Margin YoY Change: up 469 bps
    		$261.3 million278%20%66.8%
    Active Electrical Cables (AECs)
    AEC product line again grew healthy double digits sequentially to achieve new record revenue levels, based on substantial year-over-year growth across 4 domestic hyperscale customers. AECs have become the de facto standard for inter-rack connectivity and are now displacing optical rack-to-rack connections up to 7 meters.
    		—substantial year-over-year growthhealthy double digits—

    Operational metrics

    11
    Non-GAAP gross margin
    67.7%up 11 bps sequentially
    Q2 FY26

    Company-wide non-GAAP gross margin.

    Non-GAAP operating expenses
    $57.3 millionup 5% sequentially
    Q2 FY26

    Total non-GAAP operating expenses.

    Non-GAAP operating income
    $124.1 millionup from $96.2 million in Q1
    Q2 FY26

    Non-GAAP operating income for the quarter.

    Non-GAAP operating margin
    46.3%up 319 bps sequentially from 43.1%
    Q2 FY26

    Non-GAAP operating margin for the quarter.

    Non-GAAP net income
    $127.8 millionup 30% sequentially from $98.3 million in Q1
    Q2 FY26

    Record high non-GAAP net income for the quarter.

    Non-GAAP net margin
    47.7%
    Q2 FY26

    Non-GAAP net margin for the quarter.

    CapEx
    $23.2 million
    Q2 FY26

    Capital expenditures for the quarter, driven largely by purchases of production MACsec.

    Cash and equivalents balance
    $813.6 millionincrease of $333.9 million from the first quarter
    Q2 FY26 end

    Cash and equivalents balance at the end of the quarter, largely from ATM offering proceeds.

    Top end customers revenue contribution
    4 customers >10%
    Q2 FY26

    Four hyperscaler customers each contributed more than 10% of total revenue in Q2. The largest was 42%, second 24%, third 16%, and fourth 11%.

    Optical DSP growth
    significant
    FY26

    Expected significant growth in optical DSPs for the current fiscal year.

    Total market opportunity
    exceed $10 billionmore than triple where we stood just 18 months ago
    coming years

    Combined total market opportunity for Credo's five connectivity pillars.

    Industry KPIs

    5
    MetricValueDetails
    Ai data center revenue—
    Fab capacity utilization12-nanometer
    Design wins socket pipeline—
    Inventory channel inventory$150.2 millionUSD
    End market segment revenue mix—

    Product announcements

    3
    ProductTypeDetails
    Zero Flap opticslaunch
    Active LED Cables (ALCs)launch
    OmniConnect Gearboxes (Weaver)launch

    Deals & partnerships

    1
    HyperlumeAcquisition of Ottawa-based team specializing in high-performance microLED technology to accelerate time to market for new connectivity solutions.

    Credo combined forces with Ottawa-based Hyperlume, a team of experts specializing in high-performance microLED technology. Credo had been investing in micro LED innovation for 18 months, and uniting with Hyperlume will accelerate time to market for Active LED Cables (ALCs).

    Risks & headwinds

    3
    Supply constraints for advanced node waferscalendar '26 and beyond

    more frequent conversation about capacity constraints at a wafer level

    Mitigation: Credo's strategy to use older geometry processes (12nm workhorse) and the critical nature of its connectivity solutions for GPU shipments provide an advantage in securing foundry capacity.

    Customer mix variability and non-linear hyperscaler rampscoming quarters

    customer mix will vary from quarter-to-quarter

    Mitigation: Management has 12-month, and in some cases greater, visibility with customers to manage through these fluctuations. Diversifying customer base and product portfolio.

    Pitfalls of co-packaged optics (CPO)long-term

    reliability, serviceability, maintenance, cost

    Mitigation: Credo focuses on bringing more optimized solutions to market from a power and reliability standpoint, potentially within the same timeframe as CPO. Does not see high-volume [indiscernible] connections moving to CPO anytime soon due to reliability concerns.

    What to watch in Q3 FY26

    5

    Q3 FY26 Revenue

    Q3 FY26
    Current$268 million
    Target$335 million-$345 million

    Why it matters

    Key indicator of continued strong demand and execution in the AI interconnect market, and achievement of sequential growth targets.

    We currently expect revenue in Q3 of fiscal '26 to be between $335 million and $345 million, up 27% sequentially at the midpoint.

    Q&A highlights

    6

    Clarification on why the ALC TAM is projected to be double the AEC TAM, specifically if it's unit-driven, ASP-driven, or both, given the strong performance of AECs.

    Management stated it's a combination of both unit volume and ASPs. ALCs offer similar reliability and power efficiency to AECs but in a thinner, longer cable (up to 30 meters), making them ideal for row-scale networks, which could involve up to 10x more connections than scale-out networks.

    “I think it's a combination of both the quantity as well as ASPs. Now when we think about ALCs, it's really an ideal product from the standpoint of delivering the same reliability as AECs, which is really the most critical factor right now with host to [indiscernible] or GPU to switch connections.”

    asked by Tom O'Malley · answered by William Brennan

    2 min read6 chapters

    Detailed Narrative

    01

    AI Cluster Build-Out & Interconnect Demands

    Credo's record Q2 FY26 results are directly attributed to the continued build-out of the world's largest AI training and inference clusters. These systems, now measured in hundreds of thousands of GPUs, are pushing the limits of interconnect technology. Mission-critical requirements include reliability, power efficiency, signal integrity, latency, reach, and total cost of ownership, areas where Credo's 3-tiered innovation framework and SerDes technology provide unique solutions.

    02

    AEC Product Line Expansion & Hyperscaler Adoption

    The Active Electrical Cables (AECs) product line continues to be the fastest-growing segment, demonstrating healthy double-digit sequential revenue growth and achieving new record levels. This growth is driven by increasing customer diversity, with four hyperscalers each contributing over 10% of total revenue in Q2, and a fifth beginning initial contributions. AECs are becoming the de facto standard for inter-rack connectivity, displacing optical solutions up to 7 meters due to their superior reliability and power efficiency.

    03

    IC Business Performance & PCIe Progress

    Credo's IC business, encompassing retimers and optical DSPs, maintained strong performance. The company anticipates significant optical DSP growth in FY26, fueled by 50-gig and 100-gig per lane deployments, with 200-gig per lane solutions driving longer-term expansion. The PCIe retimer and AEC families are progressing as planned, with design wins expected in FY26 and meaningful production revenue projected for FY27.

    04

    Zero Flap Optics Innovation for Network Reliability

    Credo introduced Zero Flap optics, a new laser-based optical connectivity family designed to deliver AEC-class network reliability. This solution leverages a customized optical DSP, pilot software, and a switch-level SDK to enable autonomous detection and mitigation of link degradation before it impacts cluster stability. Currently in live data center trials with a lead partner, Credo expects to sample a second U.S. hyperscaler later in FY26, with initial revenue anticipated in FY27, expanding its addressable market to all data center connection lengths.

    05

    Active LED Cables (ALCs) & OmniConnect Gearboxes

    The company announced Active LED Cables (ALCs), developed in collaboration with Hyperlume, which will provide AEC-like reliability and power efficiency in thin-gauge cables extending up to 30 meters, ideal for row-scale networks. Sampling is slated for FY27, with initial revenue in FY28. Additionally, OmniConnect gearboxes, starting with the 'Weaver' solution, aim to redefine memory-to-compute connectivity, offering up to 30x more memory capacity and 8x bandwidth using commodity DDR memory, with initial revenue also expected in FY28.

    06

    Expanded Total Addressable Market & Growth Outlook

    With the introduction of Zero Flap optics, ALCs, and OmniConnect gearboxes, Credo now boasts five distinct high-growth connectivity pillars, including its core AEC and IC solutions. This strategic expansion is projected to grow the combined total market opportunity to over $10 billion in the coming years, more than tripling its TAM from 18 months prior. This diversification provides a strong outlook for continued revenue growth through FY26 and well beyond.

    AI-generated summary of the company’s earnings call. Not investment advice.