Revenue Doubled Yet Stock Plunged Over 10%! Credo (CRDO.US), Tagged as "AI and Optical Copper Synergy Boom," Hits a Profit Margin Speed Bump

 According to Zhitong Finance APP, Credo Technology (CRDO.US), focusing on high-speed copper cables and optical modules for AI data center interconnects, optical communication DSPs, and silicon photonics IC product lines, released its latest earnings report and outlook after the US stock market closed on Tuesday (Wednesday morning Beijing time). For the first quarter of fiscal 2027 ending August 1, 2026, the company achieved a year-on-year revenue increase of 114.7% to $479 million, surpassing Wall Street analysts' repeatedly revised estimate of $471.7 million. Credo Technology's latest results and outlook, combined with industry leader Anthropic's newly signed multi-billion-dollar agreement for cloud computing resources and the robust semiconductor export data from South Korea, highlight that global demand for AI computing power is still in a large-scale expansion cycle far from peaking.

In addition, the company provided second-quarter revenue guidance in the range of $525 million to $535 million, with the midpoint of $530 million equating to a year-on-year growth of 97.8%, exceeding analysts' consensus estimate of $516.5 million. However, the company's GAAP gross margin declined 290 basis points year-on-year and 370 basis points sequentially to 64.5%. Guidance for the second quarter puts the midpoint at 63.9%—relatively weak gross margin figures, which to some extent led to a post-market decline in Credo's stock price even though core metrics and revenue outlook were strong, with the stock plunging by more than 10% at one point.

Although Credo Technology’s stock price plummeted after releasing earnings, global investors have maintained strong risk appetite for the AI computing industry chain after experiencing deleveraging and crowded trade unwinding in July. As of September 1, the Philadelphia Semiconductor Index stood at 11,288.61 points, up approximately 59.4% year-to-date. The index had pulled back nearly 29% from its June peak to its July 29 low, then rebounded over 20% from the low, crossing into a technical bull market by mid-August. The South Korea KOSPI Index closed at 6,835.80 points, up 62.2% year-to-date; after a 22% plunge in July, it rebounded 22% from the July 30 low by August 13, officially re-entering a technical bull market. In essence, the July decline was more about unwinding crowded AI trades rather than a ceiling in AI compute capex cycle fundamentals.

The demand for AI computing infrastructure is shifting from major players’ budget intentions to multi-year commitments locking in computing capacity. Market research firm TrendForce expects major cloud providers' capex to grow 98% in 2026 and another 50% in 2027; DRAM and NAND combined are anticipated to rise from 47% of their capex in 2026 to 68% by 2027. Server DRAM contract prices are projected to climb approximately 270% cumulatively by 2026, enterprise-grade SSDs by about 235%, and HBM contract prices could increase another 70%–140% in 2027.

According to media reports, Anthropic has signed a cloud computing agreement worth about $35 billion with Lambda (supported by Nvidia), covering around 350 megawatts of capacity in Texas; previously, it also reached a six-year $45 billion, approximately 460 MW Vera Rubin compute leasing arrangement with Nscale. South Korea’s August exports surged 68.7% year-on-year to $98.26 billion, marking the 15th consecutive month of growth and exceeding the expected 62.6%, with chip exports reportedly reaching a record-high $46.65 billion, roughly three times the level of a year ago.

Earnings Skyrocket but Stock "Breaks": Credo's Copper Cables and AI Interconnect Bull Market Hit Gross Margin Speed Bump

Credo’s current core revenues come mainly from AEC (Active Electrical Cables) and high-speed optical interconnect chips within data centers. Nvidia is one of its largest customers, but Credo’s revenue shouldn’t be simply labeled as a “Nvidia NVL rack copper cable supplier.”

According to filings to the SEC, Credo's AEC applications focus on server–Top of Rack (ToR) high-speed switches, leaf–spine–router connections, and “GPU to network switch” links. More precisely, the physical cables typically connect NICs, DPU/SuperNIC ports on GPU servers or accelerator trays to ToR or backend switch ports, rather than connecting directly to bare GPU chips. Credo’s ZeroFlap AEC, up to 7 meters long, can provide high-speed connections for GPU-to-network switch and server-to-ToR switch inside liquid-cooled AI racks. Recently, the company demonstrated end-to-end 1.6T ZeroFlap AEC cabling for Nvidia’s mass-produced Rubin architecture NVL144 racks and the next-generation AI GPU cluster—Rubin Ultra NVL576 architecture.

Besides AEC, Credo also offers PAM4 DSPs for 400G/800G/1.6T optical modules, ZeroFlap optical transceiver modules with link telemetry, data center silicon photonics/PICs, PCIe 6.0 and CXL 3.x retimers, PCIe AEC, OmniConnect and Weaver memory fan-out chips for memory expansion and scale-up/scale-out, SerDes chiplets/IP, microLED active cables up to about 30 meters long, and the PILOT link diagnostics platform.

Latest results show Credo Technology's Q1 revenue increased 114.7% YoY to $479 million, beating analysts’ estimate of $471.7 million by 1.5%; adjusted EPS rose 130.8% YoY to $1.20, 2.6% above the expected $1.17. Q2 revenue guidance is $525–535 million, with the midpoint of $530 million up 97.8% YoY and 2.6% above the $516.5 million estimate. However, GAAP gross margin declined 290 basis points YoY and 370 sequential points to 64.5%; Q2 guidance midpoint drops to 63.9%. Thus, the post-earnings price decline was driven not by weakening AI demand, but by investor emphasis on synchronous “high-speed growth and margin quality.”

This sell-off may reflect profitability pressures amid rapid sales growth. GAAP gross margin fell from 68.2% last quarter and 67.4% a year ago to 64.5%. GAAP operating expenses more than doubled year-on-year from $89.6 million to $188.4 million. Credo remains a major beneficiary of AI data center expenditure. These systems depend on high-speed links among processors, memory, and networking equipment.

The company remains focused on ramping up R&D. R&D expenses rose from $52.4 million to $114.5 million year-over-year. Sales, general and administrative expenses climbed from $37.2 million to $73.9 million.

GAAP operating profit rose from $60.7 million to $120.7 million year-over-year, but was down from the prior quarter’s $155.8 million. Operating margin narrowed from 35.7% last quarter and 27.2% a year ago to 25.2%. Net income rose from $63.4 million or $0.34 per share to $129.4 million or $0.67 per share.

Adjusted net income climbed 140% YoY to $236.3 million. Adjusted operating profit was $230.6 million, up from $96.2 million a year ago.

Credo’s Q1 non-GAAP operating margin was 48.2%, up 510 basis points YoY but down 140 sequentially; non-GAAP net margin was 49.3%, up 520 points YoY but down 260 sequentially. These profitability figures suggest core adjusted earnings remain robust, but marginal growth is no longer expanding as rapidly as in previous quarters.

The company forecasts GAAP gross margin for next quarter at 62.9%–64.9%. The midpoint, 63.9%, is lower than this quarter’s 64.5%. GAAP operating expenses are expected to rise to $199–204 million. Adjusted gross margin guidance is 67–69%, down slightly from Q1’s 68%. Adjusted operating expenses are projected at $100–105 million, up from Q1’s $95.2 million.

Credo's Billion-Dollar-Scale “Optical-Copper Synergy” Strong Growth Logic

The expansion of Nvidia AI GPU clusters and Google TPU compute clusters is a key underlying driver for Credo demand. Besides AEC copper cables, Credo also provides 400G, 800G, and 1.6T ZeroFlap optical modules, optical DSPs and silicon photonics ICs, OmniConnect memory and inter-chip links, Ethernet and PCIe retimers, SerDes chiplets/IP, microLED active optical cables, and the PILOT software platform for link health and broken-link prevention. Thus, Credo is more accurately positioned as a “chip-to-cluster copper-optics convergence AI interconnect platform covering millimeter to kilometer,” not just a copper cable company.

GPU rack expansion drives copper interconnect demand, while cluster growth amplifies optical interconnect needs. Credo is in a position to capitalize on both. Its growth value extends beyond high-speed copper cables in NVL racks to a comprehensive product portfolio covering server networking, intra-datacenter optical interconnects, PCIe, and memory expansion. CEO Bill Brennan stated in the latest results release: “Our portfolio now covers connection ranges from millimeters to kilometers, across both optical and copper connectivity solutions.”

The data center interconnect logic isn’t “optics replacing copper,” but rather coexistence based on transmission distance, power, and networking layer segmentation: AECs are optimal for intra-rack and short-distance inter-rack links, offering advantages in low power, cost, and high reliability; pluggable optical modules and optical DSPs serve for longer switch-switch, leaf–spine networks, and inter-rack connections; microLED active cables aim to cover the mid-range gap between copper and traditional optical modules. As GPU quantities rise, short-range copper ports increase in tandem; as clusters scale, long-range optical connections expand faster.

Thus, both Citigroup’s emphasis on AI capex expansion and Morgan Stanley’s latest verdict of “long-term copper-optics coexistence with phased migration to optical interconnects in AI data centers” support the view that Credo can simultaneously capture current AEC cash flow and incremental future growth in optical interconnect systems, instead of betting on a single transmission medium.

“Optical-copper synergistic explosive growth” is likely to become a major re-rating driver for Credo in the coming years. BNP PARIBAS’s $275 price target and “potential upside market of at least $10 billion” logic reflect Credo’s upgrade from a single strong AEC business to an interconnect platform driven by AEC, ZeroFlap optical modules, optical DSP, ALC, and OmniConnect. Since the beginning of the year, Credo’s stock is up over 43%, outperforming the S&P 500 by a wide margin.

However, as Credo reported strong results and revenue outlook but the stock still declined, investors are no longer ignoring gross margin, customer concentration, and new product monetization. The company reported $479 million in revenue for the first quarter of fiscal 2027, up 114.7% year-on-year; adjusted EPS of $1.20 beat market expectations of $1.17; and second quarter revenue guidance ranges $525–535 million. After earnings, the stock still dropped—falling over 10% to around $186, reflecting that capital is no longer satisfied with rapid revenue and quarterly outlook growth alone, but is now scrutinizing growth quality, product mix, and profitability.

As Nvidia once again posts blowout results and explosive outlook, the AI compute theme may not only focus on Nvidia’s GPU clusters, but may further accelerate toward HBM/DRAM/NAND, CoWoS/3D advanced packaging, data center CPUs, high-performance network infrastructure, high-speed copper/optical interconnects, and the entire AI computing industry chain including data center power infrastructure.

Citi, Goldman Sachs, and Morgan Stanley and other Wall Street giants are all bullish on the overall demand for Nvidia’s next-generation compute architecture Vera Rubin, GPU cluster growth visibility in 2027 and beyond, and AI infrastructure expansion. Their consensus bullishness centers on persistent strong AI compute demand, Vera Rubin ramp-up, and Nvidia’s strengthening hardware-software platform advantages. This is why 19 Wall Street analysts assign Credo an average target price of about $268.39, with the highest target as high as $350.