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Can Credo Keep Its Solid Margins Intact Amid Rapid FY26 Growth?
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Key Takeaways
Credo enters fiscal 2026 with strong quarterly revenue and sharply higher profitability.
Growth is driven by strong AEC demand and expanding adoption across hyperscale customers.
Optical DSPs and PCIe retimers add momentum as Q2 view implies robust revenues and margins.
Credo Technology Group Holding Ltd (CRDO - Free Report) entered fiscal 2026 with exceptional momentum, delivering a strong quarter and raising questions about whether its robust profitability can be sustained as growth accelerates through fiscal 2026. The company posted first-quarter revenues of $223 million, up 31% sequentially and an impressive 274% year over year, reflecting surging demand for high-speed, power-efficient connectivity solutions across hyperscale AI infrastructure.
The company’s margin performance was equally striking. For the first quarter of fiscal 2026, Credo reported a non-GAAP gross margin of 67.6%, above the high end of the company’s guidance and improving 20 basis points sequentially. Product non-GAAP gross margin also expanded to 66.7%, driven by growing scale. Non-GAAP operating income reached $96.2 million, raising the non-GAAP operating margin to 43.1% from 36.8% in the prior quarter. This drove a record non-GAAP net income of $98.3 million, translating into a robust 44.1% non-GAAP net margin, underscoring the company’s operational discipline alongside rapid top-line scaling.
Credo’s AEC (active electrical cable) business continues to anchor its growth, with the top three customers contributing more than 10% each to first-quarter revenues. The company expects three to four customers to stay above this level through fiscal 2026 as existing hyperscalers expand and two new hyperscale customers ramp up. Customer demand spans intra-rack and emerging rack-to-rack applications, with AECs often chosen over optical interconnects due to significantly higher reliability and lower power consumption.
Credo is simultaneously expanding beyond AECs, with strong progress in optical DSPs and PCIe retimers. Optical revenues are on track to double in fiscal 2026, supported by a next-generation 1.6T DSP and rising adoption of 800G and 100-gig-per-lane solutions. Credo’s PCIe Gen 6-ready products are gaining traction ahead of expected production ramp-ups in calendar 2026.
Revenue momentum is expected to support margins as the company maintains cost discipline. CRDO expects $230–$240 million in revenues, implying mid-single-digit sequential growth, with a non-GAAP gross margin of 64%–66% and operating expenses of $56–$58 million. For fiscal 2026, Credo anticipates a mid-single-digit sequential revenue increase, resulting in roughly 120% year-over-year growth. Non-GAAP net margin is projected to hold near 40%, supported by scaling efficiencies and operating expense growth kept below 50% year over year.
However, increasing market competition and macroeconomic uncertainties amid tariff troubles remain concerns. Credo competes with semiconductor giants, like Marvell Technology (MRVL - Free Report) and Broadcom (AVGO - Free Report) .
Taking a Look at MRVL & AVGO’s Margins
Marvell is rapidly scaling its connectivity portfolio by introducing products, like Active Copper Cable Linear Equalizers, Digital Signal Processors (DSPs), AEC, scalable data center interconnect, ethernet switch and co-packaged optics as AI workloads demand faster connectivity. In the second quarter of fiscal 2026, Marvell's non-GAAP gross profit increased 62.9% year over year. However, the non-GAAP gross margin of 59.4% contracted 250 basis points (bps). The non-GAAP operating margin of 34.8% expanded 870 bps year over year.
For the third quarter, the company expects revenues to be $2.06 billion (+/- 5%). The non-GAAP gross margin is projected to be in the 59.5-60% range, while non-GAAP earnings per share are expected to be 74 cents (+/- 5 cents).
Broadcom is experiencing strong momentum fueled by growth in AI semiconductors and continued success with its VMware integration. Strong demand for its networking products and custom AI accelerators (XPUs) has been noteworthy. In third-quarter fiscal 2025, the company’s non-GAAP gross margin was 78% up 100 bps year over year. The adjusted EBITDA margin was 67.1% up 420 bps. The non-GAAP operating margin expanded 470 bps year over year to 65.5%. For fourth-quarter fiscal 2025, Broadcom expects revenues of $17.4 billion, indicating 24% year-over-year growth. Gross margin is expected to decline 70 bps sequentially. The adjusted EBITDA margin is expected to be 67% for the fourth quarter of fiscal 2025.
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Can Credo Keep Its Solid Margins Intact Amid Rapid FY26 Growth?
Key Takeaways
Credo Technology Group Holding Ltd (CRDO - Free Report) entered fiscal 2026 with exceptional momentum, delivering a strong quarter and raising questions about whether its robust profitability can be sustained as growth accelerates through fiscal 2026. The company posted first-quarter revenues of $223 million, up 31% sequentially and an impressive 274% year over year, reflecting surging demand for high-speed, power-efficient connectivity solutions across hyperscale AI infrastructure.
The company’s margin performance was equally striking. For the first quarter of fiscal 2026, Credo reported a non-GAAP gross margin of 67.6%, above the high end of the company’s guidance and improving 20 basis points sequentially. Product non-GAAP gross margin also expanded to 66.7%, driven by growing scale. Non-GAAP operating income reached $96.2 million, raising the non-GAAP operating margin to 43.1% from 36.8% in the prior quarter. This drove a record non-GAAP net income of $98.3 million, translating into a robust 44.1% non-GAAP net margin, underscoring the company’s operational discipline alongside rapid top-line scaling.
Credo’s AEC (active electrical cable) business continues to anchor its growth, with the top three customers contributing more than 10% each to first-quarter revenues. The company expects three to four customers to stay above this level through fiscal 2026 as existing hyperscalers expand and two new hyperscale customers ramp up. Customer demand spans intra-rack and emerging rack-to-rack applications, with AECs often chosen over optical interconnects due to significantly higher reliability and lower power consumption.
Credo is simultaneously expanding beyond AECs, with strong progress in optical DSPs and PCIe retimers. Optical revenues are on track to double in fiscal 2026, supported by a next-generation 1.6T DSP and rising adoption of 800G and 100-gig-per-lane solutions. Credo’s PCIe Gen 6-ready products are gaining traction ahead of expected production ramp-ups in calendar 2026.
Revenue momentum is expected to support margins as the company maintains cost discipline. CRDO expects $230–$240 million in revenues, implying mid-single-digit sequential growth, with a non-GAAP gross margin of 64%–66% and operating expenses of $56–$58 million. For fiscal 2026, Credo anticipates a mid-single-digit sequential revenue increase, resulting in roughly 120% year-over-year growth. Non-GAAP net margin is projected to hold near 40%, supported by scaling efficiencies and operating expense growth kept below 50% year over year.
However, increasing market competition and macroeconomic uncertainties amid tariff troubles remain concerns. Credo competes with semiconductor giants, like Marvell Technology (MRVL - Free Report) and Broadcom (AVGO - Free Report) .
Taking a Look at MRVL & AVGO’s Margins
Marvell is rapidly scaling its connectivity portfolio by introducing products, like Active Copper Cable Linear Equalizers, Digital Signal Processors (DSPs), AEC, scalable data center interconnect, ethernet switch and co-packaged optics as AI workloads demand faster connectivity. In the second quarter of fiscal 2026, Marvell's non-GAAP gross profit increased 62.9% year over year. However, the non-GAAP gross margin of 59.4% contracted 250 basis points (bps). The non-GAAP operating margin of 34.8% expanded 870 bps year over year.
For the third quarter, the company expects revenues to be $2.06 billion (+/- 5%). The non-GAAP gross margin is projected to be in the 59.5-60% range, while non-GAAP earnings per share are expected to be 74 cents (+/- 5 cents).
Broadcom is experiencing strong momentum fueled by growth in AI semiconductors and continued success with its VMware integration. Strong demand for its networking products and custom AI accelerators (XPUs) has been noteworthy. In third-quarter fiscal 2025, the company’s non-GAAP gross margin was 78% up 100 bps year over year. The adjusted EBITDA margin was 67.1% up 420 bps. The non-GAAP operating margin expanded 470 bps year over year to 65.5%. For fourth-quarter fiscal 2025, Broadcom expects revenues of $17.4 billion, indicating 24% year-over-year growth. Gross margin is expected to decline 70 bps sequentially. The adjusted EBITDA margin is expected to be 67% for the fourth quarter of fiscal 2025.
CRDO Price Performance, Valuation and Estimates
Shares of CRDO have gained 120.2% in the past six months compared with the Electronics-Semiconductors industry’s growth of 43.2%.
Image Source: Zacks Investment Research
Regarding the forward 12-month Price/Sales ratio, CRDO is trading at 20.81, higher than the Electronic-Semiconductors sector’s multiple of 7.56.
Image Source: Zacks Investment Research
The Zacks Consensus Estimate for CRDO earnings for fiscal 2026 has been revised upward significantly over the past 60 days.
Image Source: Zacks Investment Research
CRDO currently has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.