Credo Technology Group Q3 Earnings Call Highlights

Credo Technology Group (NASDAQ:CRDO) reported record results for its third quarter of fiscal 2026, citing strong demand from hyperscale customers and continued momentum in its portfolio of copper and optical connectivity products aimed at AI infrastructure and data centers.

Record quarter driven by hyperscale demand

CEO William Brennan said the company delivered record revenue of $407 million, up 52% sequentially and more than 200% from the year-ago quarter. Brennan described the period as the “most accelerated growth phase” in Credo’s history, noting that the company more than doubled revenue from fiscal 2024 to fiscal 2025 and expects to triple revenue again in fiscal 2026.

Chief Financial Officer Daniel Fleming said the quarter landed at the high end of Credo’s revised guidance and reflected “substantial year-over-year growth across 4 domestic hyperscale customers.” He added that the company’s top three end customers each contributed more than 10% of revenue in the quarter and that customer concentration is expected to persist, with 3 to 4 customers above the 10% threshold in coming quarters and across the fiscal year.

In response to a question about what drove the upside in the quarter, management pointed to sequential growth from all three of its largest customers. Fleming said the largest customer accounted for 39% of revenue, the second-largest for 32%, and the third for 17%, with the ordering shifting versus prior quarters.

Profitability, cash flow, and balance sheet

Credo reported non-GAAP gross margin of 68.6%, above the high end of its guidance range and up 92 basis points sequentially. Fleming attributed operating leverage to the pace of revenue growth relative to expense growth. Non-GAAP operating expenses were $77.4 million, up 35% sequentially, which Fleming said reflected strong R&D investment.

Non-GAAP operating income rose to $201.8 million and non-GAAP operating margin improved to 49.6%. Non-GAAP net income was $208.8 million, up 63% sequentially, and non-GAAP net margin was 51.3%.

Fleming said cash flow from operations reached a record $166.2 million and free cash flow was $139.7 million after $26.5 million in capital expenditures, driven largely by purchases of production mask sets. Credo ended the quarter with $1.3 billion in cash and equivalents, up $487.9 million sequentially, which management attributed to proceeds from an at-the-market (ATM) offering that ran from October through December and the quarter’s free cash flow. Ending inventory was $208 million, up $57.8 million sequentially.

Product and market update: AECs, ICs, and shifting architectures

Brennan emphasized Credo’s focus on network reliability and energy efficiency, arguing that AI cluster performance depends on both. He said the company is positioning its product roadmap to address connectivity “from die-to-die links” through rack-scale copper and into facility-wide optical solutions.

For Active Electrical Cables (AECs), Brennan said the product line posted strong growth driven by existing customers and new wins, including a fifth hyperscaler. He characterized AEC adoption as still early and described AECs as increasingly displacing laser-based optical modules for intra-rack and rack-to-rack links up to 7 meters. Brennan said Credo’s ZeroFlap AECs deliver up to “1,000 times better reliability” than commodity laser-based optics while using roughly half the power, and he said the company is supporting large deployments at 100 gig per lane while preparing for transitions to 200 gig per lane and 1.6T ports.

On the IC side, Brennan said the company expects strong optical DSP growth in fiscal 2026, driven by 100 gig per lane deployments and increasing traction at 200 gig per lane as customers prepare for 1.6T transitions. He also highlighted growth in 100 gig per lane Ethernet retimers in traditional switching fabrics and in the expanding AI server segment. For PCIe, Brennan said PCIe 6.0 AECs are sampling now with mass production expected in the first half of fiscal 2027, while PCIe Gen 6 retimers are expected to see fiscal 2026 design wins convert to production revenue in fiscal 2027.

During Q&A, management addressed investor debate over copper versus optical and the industry’s interest in co-packaged optics (CPO). Brennan said the market is evolving toward a “heterogeneous mix” of copper, pluggable optics, near package optics, and eventually CPO, but argued that reliability remains a gating factor for broader adoption of newer optical architectures. He added that Credo’s approach is to apply its reliability focus across both copper and optical products, including telemetry designed to detect and mitigate link issues before they impact clusters.

New product families and roadmap timing

Brennan outlined progress on three newer product families that he said expand the company’s total addressable market by covering more connectivity lengths inside the data center:

• ZeroFlap optics: Credo said it began production shipments with its first neocloud customer, TensorWave, and is in qualification with three additional customers, including hyperscalers and neocloud operators. Brennan said the ramp is now expected to begin in fiscal Q1 2027, pulled forward from a prior expectation of a ramp beginning in the second half of fiscal 2027. In a later answer, he said the pull-in is being driven by customer demand and that the company has made supply chain commitments to support the earlier ramp. He also said he expects to ramp ZeroFlap optics across more than four customers during fiscal 2027.
• Active LED Cables (ALCs): Brennan said ALCs leverage MicroLED expertise from Credo’s HyperLUM acquisition and are designed to extend reach beyond copper with a thinner optical cable that can reach up to 30 meters. The company expects to sample and qualify its first ALC products in fiscal 2027 with a production ramp in fiscal 2028.
• OmniConnect: Brennan said OmniConnect combines Credo’s VSR SerDes with a family of gearboxes for XPU connectivity. He highlighted the first product, Weaver, which he said can improve memory IO density and reach up to 10 inches by converting SDR to DDR. Brennan said customer Positron plans to use the architecture in an inference XPU design, and he expects a production ramp for the first OmniConnect gearbox in fiscal 2028. He also discussed a longer-term path to an OmniConnect gearbox targeting near package optics with MicroLED.

Guidance and outlook

For the fourth quarter of fiscal 2026, Credo guided for revenue of $425 million to $435 million. The company expects non-GAAP gross margin of 64% to 66% and non-GAAP operating expenses of $76 million to $80 million, with diluted weighted average share count of approximately 197 million. Fleming said the outlook is based on the “current tariff regime,” which he described as fluid.

Looking ahead to fiscal 2027, Fleming said the company expects sequential revenue growth in the mid-single digits, resulting in more than 50% year-over-year growth. Management also reiterated that gross margin can vary quarter-to-quarter with product mix and that its long-term expectation remains in the 63% to 65% range, describing its forecasting approach as conservative.

Credo also announced it completed the acquisition of Comera. Brennan said Credo has collaborated with Comera as an IP partner since 2022 and described the business as strong in protocol IP, error correction, and security IP. He said the deal strengthens Credo’s ability to deliver end-to-end, system-level connectivity solutions and accelerates its connectivity roadmap.

About Credo Technology Group (NASDAQ:CRDO)

Credo Technology Group, Inc (NASDAQ: CRDO) is a fabless semiconductor company that develops high‑speed connectivity solutions for cloud, enterprise and telecommunications infrastructure. The company focuses on semiconductors and related IP that enable reliable, low‑latency movement of large volumes of data between servers, switches and optical modules in data centers and network equipment.

Credo’s product portfolio centers on high‑speed analog and mixed‑signal devices designed to preserve signal integrity and extend reach over copper and optical links.