Credo easily had one of the best earnings reports across the tech sector this quarter. The company reported growth of 274% YoY and 31% QoQ for revenue of $223.1 million. This beat estimates on the top line by 17% with management raising full-year revenue growth outlook by 35 points, from 85% YoY to 120% YoY. This corresponds to revenue of at least $960 million, and considering Credo expects two new hyperscaler customers to ramp in mid to late FY26, the company could well be on a trajectory to reach $1 billion in revenue this fiscal year. This would be an entire year ahead of analyst expectations, which projected $1 billion in revenue in FY27 heading into the report.
The bottom line also shined with adjusted EPS beating estimates by 44.4%. This represents growth of 1,200% YoY from a thin $0.04 in the prior-year quarter. Triple-digit growth of 425% on the bottom line is expected to follow although flat QoQ.
To be prudent, Credo’s Q2’s guide could be perceived as soft, at ~5.4% QoQ versus the 31% QoQ reported in Q1. Additionally, analysts were concerned about lumpiness in lead customers, although to be fair, Credo has done quite well with few customers up to this point by tackling a large total addressable market (TAM) with reliable yet cost-effective solutions. Credo’s proprietary serializer/deserialzer (Ser/Des) technology, active electric cables and digital signal processing (DSPs) are the cornerstone of its IP portfolio, giving the company a significant competitive advantage as it enables the power-efficient connectivity and reasonable pricing that the company is known for.
In a nutshell, this is why Credo is reporting surging growth in a highly competitive market: “Reliability and power efficiency [leads] to choosing AECs over optical solutions as they are up to 1,000x more reliable and consume half the power. AECs virtually eliminate link fabs, which are intermittent losses of connection, boosting cluster reliability and productivity while reducing power consumption.”
More information on how Credo plans to sustain growth into 2026 is noted below in the Q&A section, along with more details from tonight’s standout earnings report.
Revenue Growth Accelerates Nearly 100 Points
Credo smashed its own guidance by more than $33 million as it reported $223.1 million in revenue in Q1, riding strong demand for its power-efficient high-speed connectivity solutions. Growth accelerated nearly 100 points sequentially to 274% YoY, well ahead of estimates for 219%. On a sequential basis, revenue rose 31% QoQ, a slight acceleration from 26% QoQ in fiscal Q4.
Coming into the report, the bar was already set high as estimates called for a 150-point revenue acceleration over three quarters to >200% YoY growth.
For fiscal Q2, Credo guided for $230 to $240 million, or 226% YoY at midpoint, decelerating nearly 50 points from Q1. Sequentially, the guide feels more conservative at ~5.4% QoQ considering the product momentum Credo has behind it with AECs, optics and DSPs.
As of Q4, management had provided initial FY26 revenue guidance of >$800 million representing 85% YoY growth. Now, this has been updated to growth of 120% YoY, or north of $960 million for the year.
Customer Concentration:
In Q4’25, Credo disclosed its largest customer accounted for 61% of revenue (widely believed to be Microsoft). Management said they expected up to five >10% customers in FY26, up from three in FY25. Two additional hyperscalers were highlighted as ramping in mid-and late-FY26, with potential to become > 10% customers.
In its Q1’26, Credo provided some additional color around progress on these fronts. Management confirmed that the three >10% customers noted in Q4’25 were consistent in Q1’26, coming in at 35%, 33% and 20% of total revenue respectively.
The largest customer in FY25 continues to be the largest customer so far in FY26, signaling deepening relationships on-top of these new customer adds. Management also noted that Q1 included its first material revenue contribution from a 4th hyperscaler, with the 4th customer expected to surpass the >10% threshold by year end. Management expects continued progress around diversification through FY26.
Key Segments
Product Revenue: came in $217.1M, up 279% YoY and 31% QoQ. This is just shy of +303% YoY growth in Q4FY25 but still represents hypergrowth scale. Credo’s core engine remains AECs, which continue to benefit from rack-scale AI deployments). The fact that product revenue sustained triple-digit YoY growth while already running at a $200M+ quarterly pace suggest demand remains well ahead of consensus estimates.
IP License Revenue of $6.0M vs $4.2M in Q4 represented 44% QoQ. Still a smaller slice of the “revenue” pie but showing sequential growth. While licensing is still <3% of revenue but provides margin-accretive diversification. Growth here reinforces the stickiness of Credo’s SerDes IP, but the story remains dominated by physical product sales.
Engineering Services not broken out in this release, likely immaterial versus Product Sales.
Key Takeaways:
- AEC remains the primary growth driver – scaling with hyperscaler AI deployments. Product revenue is highly concentrated.
- Optics / DSP not broken out numerically this quarter, but management previously guided for 100% growth in FY26. Given the revenue beat, optics may already by contributing to incremental upside.
- Retimers / PCIe 6 are still in early stage, but momentum in design wins should show up later FY26- FY27.
Operating Margin Shows Strong Sequential Expansion
GAAP Gross Margin was 67.4%, up from 67.2% last quarter and up from 62.5% in prior-year quarter. Adjusted gross Margin was 67.5%, down from 68.0% last quarter but up from 62.9% in prior-year quarter. Coming into the report, Credo had guided for: GAAP gross margin of 63.4 – 65.4% and adjusted gross margin of 64 – 66%. This shows continued expansion despite hypergrowth, a rare feat at this scale. Gross margins are expanding as volumes surge – evidence that AEC and optics pricing power is intact, and scale is not being bought at the expense of margin.
GAAP Operating Margin was 27.2%, up from 19.9% last quarter and up from (24.2%) in prior-year quarter. Adjusted Operating Margin was 43.1%, up from 36.8% last quarter and up from 3.7% in prior-year quarter. This is the standout – massive operating leverage as opex grew only ~11% QoQ vs. the 31% pick up in revenue. Non-GAAP operating margin of 40% signals that Credo is already functioning with elite efficiency, while still in hypergrowth mode.
GAAP Net Margin was 28.4%, up from 21.5% last quarter and up from (15.9%) in prior-year quarter. Adjusted Net Margin was 44.1%, up from 38.4% last quarter and up from 11.7% in prior-year quarter. Net Margins largely mirror the operating leverage story – Credo has become a profit machine far earlier in its lifecycle than most hardware names. The non-GAAP margin profile rivals leading semiconductor companies, while GAAP remains strong despite rising stock comp.
Adjusted EPS up 1,200% YoY
Credo reported GAAP EPS of $0.34, up from $0.20 last quarter and up from ($0.06) in prior-year quarter.
Q1’s adjusted EPS was $0.52, up 1,200% YoY from a thin $0.04 in the prior-year quarter and beating estimates by more than 44%. This also was a ~50% sequential improvement from $0.35 in Q4 driven by strong margin expansion down the line.
Credo is currently expected to report 435% YoY growth in adjusted EPS in Q2 to $0.37 and 58.4% growth in Q3 to $0.40, though given the margin strengths and sizable Q1 beat, these figures could move higher in the coming days.
Solid Cash Flow Generation in Q1
Credo’s balance sheet and cash flow position remain a core strength, underpinned by solid profitability, disciplined working capital management, and a debt-free structure. The company exited Q1 FY26 with $480 million in cash and investments, up from $431 million last quarter which should provide ample liquidity to support on-going product ramps and elevated R&D spend. Operating and free cash flow remained robust despite a sequential moderation from Q4’s unusually strong collections, with improvements in receivables management (DSO down to 73 from 86) helping offset continued investment in inventory. Inventory days held steady even as dollar levels rose, suggesting stocking is keeping pace with sales growth rather than accelerating further. Payables contracted notably, with DPO falling to 68 days from 91, reflecting less supplier financing and contributing to a softer cash conversion cycle. Overall, Credo continues to generate healthy cash margins, maintain a fortress balance sheet, and reinvestment modestly in capacity through capex.
Though cash flows moderated slightly from Q4, both operating and free cash flow margins remained >20%. This represented substantial YoY expansion in OCF and FCF margins of 35 to 45 points.
- GAAP Operating Cash Flow of $54.2 million, down slightly from $57.8 million last quarter and up from ($7.2 million) in the prior-year quarter. This represents an OCF Margin of 24.3%, down from 34.3% last quarter but up significantly from (12.1%) in the prior-year quarter.
- Free Cash Flow of $53.1 million, down from $54.2 million last quarter and up from ($13.1 million) in the prior-year quarter. This represents an FCF Margin of 23.8%, down from 31.9% last quarter but up more than 45 points from (21.9%) in the prior-year quarter.
- Cash and Cash Equivalents (including short-term investments) of $479.6 million, up from $431.3 million last quarter. Credo remains debt-free.
- Accounts receivable of $181.2M up from $162M in Q4’25 and $71.8M in Q1’25. Q1’26 implies DSO of 73 days compared to 86 days as of Q4’25, reflecting a meaningful improvement in collections. Credo is monetizing sales faster despite rapid growth which is supportive for cash flow sustainability and offsets some of the working capital drag from inventory.
- Inventory of $116.6M, up from $90.0M last quarter and up from $31.5M in prior-year quarter. Q1’26 DIO (Days Inventory Outstanding) of 144 days is largely flat compared to Q4’25 DIO of 145 days. Inventory levels are holding steady relative to COGS, despite inventories increasing in dollar terms. This suggests the big build last quarter may have been a step-function while Q1 was more consistent stocking in line with higher sales volume.
- Accounts payable of $54.9M, down from $56.2M in prior quarter and $38.47 in prior year. DPO (Days Payable Outstanding) in Q1’26 is down to 68 days compared to 91 days in Q4’25. This reflects a notable decline of 23 days in payables days and could be due to earlier supplier payments, changes in terms, or timing effects.
- Capex was $2.8M, driven mostly by production equipment. This figure is down from $3.7M in prior quarter and down from $22.0M in prior year quarter. production equipment
Earnings Call Q&A Highlights
Commentary on Customer Concentration:
There was a moment during the call when the price action was more muted +5% versus +12% now. I believe it happened when management disclosed the lead customer represented 35% of revenue in Q1 compared to 61% last quarter. However, the market is being fickle if so, as customer diversification should be seen as a strength.
Here is what the CFO stated:
“Vivek Arya BofA Securities:
First set of questions is on the AEC market. If you could quantify how large each of your 10% customers were if they were the same as you had in the prior quarter?
And then Bill, if I zoom out, the market for you is now run rating closer to $1 billion or so. How large do you think this market is over time? And do you think this market is cannibalizing traditional copper? Or do you think at some point, it is even cannibalizing optical transceivers?
Daniel Fleming, CFO:
Vivek, this is Dan. Let me address the 10% customer question that you had. So as we mentioned in our prepared remarks, we had three 10% customers in Q1. They were the same three customers that were 10% customers in Q4. The mix was a little bit different, though. Our largest customer was 35% of revenue. Second largest was 33% and the third largest was 20%. So we're quite pleased with that kind of the customer diversity that we demonstrated within Q1.
But having said that, we expect continued diversification, as Bill highlighted, throughout fiscal '26. We do see two additional hyperscalers ramping, one of which, which was our fourth hyperscaler, we mentioned should reach to be a 10% customer for the full year of fiscal '26.
And then the last thing I'll mention on customer our largest customer for fiscal '25 is the largest driver of our growth in fiscal '26 as we stand right now and look forward. So that's an important factor to bear in mind as well as you look at how our year will progress..”
Later, an analyst asked for more clarity as to why the lead customer was down yet management stated the largest customer from last year will remain their largest customer for FY26 “by far, actually.”
Copper AECs versus Optical:
I think it’s worth repeating why Credo is seeing outsized demand in an otherwise crowded market – and one that can change rapidly in terms of which suppliers are confirmed, and if direct active cables are used (DACs), active electric cables (AECs) or optional solutions.
The question was: “And do you think this market is cannibalizing traditional copper? Or do you think at some point, it is even cannibalizing optical transceivers?”
This question is important as it’s asking why can Credo take market share with AECs from both traditional copper and optical.
The CEO stated: “But I think with the emphasis on reliability as it relates to clusters that we see customers really considering using AECs. It's really driven by reliability. I mentioned on the prepared comments that we're up to 1,000x more reliable, effectively reducing length laps and having the uptime of the cluster being much more.
Again, reiterating that if you have got a single link flap in, say, 10,000 or 100,000 or 1 million GPU cluster, it brings the entire cluster down because there's no redundancy from that NIC to tour connection. And so we're actually seeing the TAM expanding. And I think for the first time in history that you're seeing copper replacing optical connections. So we're quite bullish on the market generally.”
Specifically, where Credo has done well is with row-scale connectivity, which links racks in a single row. However, there are additional ongoing opportunities for Credo in rack-scale networking with NiC and Tor (top of rack) switches, as these both represent distances ideal for the reliability and power efficiency of AECs compared to optical. NiC-to-Tor would be a new opportunity for Credo: “Again, to reiterate, we see a huge opportunity from NIC to TOR applications as well as switch rack applications. And that is for front end and really emphasized much more strongly in back end, both in scale out and scale up.”
Overall management felt confident that the advantages AECs offer will continue to see increased adoption by hyperscalers with scale-out being the main driver now for Credo, yet scale-up being a future driver as well that is “an order of magnitude larger”
“When we talk about rack-to-rack, this is really the expanding part of the TAM really in both markets from the standpoint of AI back-end networks. as well as switch racks. Switch racks are starting to go to multiple rack architectures. And so as we talk about the near-term opportunity for rack-to-rack, it's really represented by the scale-out network. But long term, we see that the scale-up network also represents a really large growth in TAM, given the fact that we expect the volumes for scale-up to be potentially in order of magnitude larger than the scale-up connections.
So I think on several fronts, we can make the argument that we're still in the early stages. And I don't think there's any doubt in the market about if you can use copper, you will use copper given the advantages for reliability, power and cost.”
This was also stated in terms of how the market will only grow from here for Credo:
“Yes, I wouldn't say it's across the board. I would say that the first step typically is intra-rack, so 3-meter or less connections within the same rack. And this is just recent over the last 6 to 9 months that we've seen traction as our customers start to realize the opportunity to deliver much better cluster reliability and also secondarily better power. And so I would say that we're at the early stages still of having the market expand into rack-to-rack types of solutions. But I do think there's going to be an acceleration in the way that our customers view and use AECs.”
Increasing TAM from Tighter GPU Clusters, PCIe Retimers, LROs and More:
In the opening remarks, the CEO emphasized that Credo is expanding its total addressable market in a few key areas. That message is especially relevant for investors in a hypergrowth stock like this one, where analyst models currently forecast a sharp slowdown — from 274% YoY growth to just 26% over the next three quarters. Analysts have consistently set the bar too low, as shown by Credo’s roughly 30% beats for three straight quarters. Still, the key question remains whether the company can continue sustaining this pace of growth.
Management pointed toward the following:
- Packing more GPUs into clusters is a catalyst for AECs:“We also see the trend towards GPU and cluster densification to continue to be a catalyst for an expanding AEC TAM. Over the past year, we've seen customer interest for AECs expand from intra-rack solutions to rack-to-rack solutions.”
Management also pointed toward scale-up as a significant growth driver, which makes sense and is what our thesis is formed on, yet it’s good to see the CEO emphasize this: “And so I think that for us, we'd just like to see the market go faster sooner because the scale-up opportunity represents a significant increase in TAM really over the next two to five years.”
- Optical DSPs and LROs: Credo foresees expanding their TAM beyond copper with the goal of doubling optical revenue in FY26. Management hinted they plan to release more products for optical networking at the system-level and 800G LROs. There was also mention of improving the connection between GPUs and memory as a greenfield they plan to go after.
- Ethernet Retimers and PCIe Retimers: Credo has recently expanded into PCIe solutions for AI networking which they stated significantly broadens TAM ahead of the shift to 200G per lane scale-up architectures. These products are called Toucan and Magpie.
During the Q&A, the CEO stated the PCIe scale-up opportunity was a bigger opportunity than Ethernet scale-up: “Yes. I would say that the near-term opportunity for us to scale up is really with the PCIe protocol as we see the market moving from PCIe Gen 5 to Gen 6. We do see that AECs will represent a really nice opportunity, both for intra-rack as well as rack-to-rack as scale-up goes row scale”
Conclusion:
We had stated in our Nvidia earnings write-up that the QoQ growth in Nvidia's networking segment should spell good things for I/O Fund members who hold Credo and Astera Labs. So far, so good in terms of the read-through.
What is unique about Credo is not only the hypergrowth that flows effortlessly to the bottom line, but that by my estimation, we are still very early to this trend. I recently said in an interview that networking is what defines the current generation of GPUs, and certainly Credo’s report supports this takeaway.
Typically, I’d be concerned a company like Credo is hitting peak growth, and there could be lumpy quarters; however, management spent a good deal of time on the earnings call going over why Credo is doing so well and why Credo will continue to do well from both a product differentiation standpoint (AECs are in high demand over traditional copper and optical solutions) but also how they plan to expand to meet the fluid needs of intra-rack and rack-to-rack architectures.
This marks the final week of a busy earnings season for the I/O Fund, and Credo saved the best for last. The company continues to hold a prime spot at the top of our aggressive buy list.
Please note: The I/O Fund conducts research and draws conclusions for the company’s portfolio. We then share that information with our readers and offer real-time trade notifications. This is not a guarantee of a stock’s performance and it is not financial advice. Please consult your personal financial advisor before buying any stock in the companies mentioned in this analysis. Beth Kindig and the I/O Fund own shares in CRDO at the time of writing and may own stocks pictured in the charts.
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