$CRDO

Credo Technology Group Holding Ltd (CRDO)
FQ2 2026 Results and FQ3 2026 Outlook

General Summary
• The company reported the strongest quarterly results in its history in Q2 (FQ2 2026).
• Revenue and profitability increased very strongly both sequentially and year over year.
• The growth of artificial intelligence training and inference clusters was the main driver.
• The stock rose about 12.5% in after-hours trading following the results.

FQ2 2026 Financial Results

• Revenue:
• $268.03M
• 272.1% year-over-year growth
• Analyst expectation: $234.99M
• $33.04M above expectations.

• Profitability (Non-GAAP):
• Earnings per share (EPS): $0.67
• Expectation: $0.50 (in some places $0.49)
• $0.17 above expectations.
• Non-GAAP gross margin: 67.7%
• Non-GAAP net income: $127.8M
• Non-GAAP operating income: $124.1M
• Non-GAAP operating margin: 46.3%
• Non-GAAP net margin: 47.7%
• Product Revenue:
• $261.3M, 20% sequential, 278% year-over-year growth.
• The AEC (Active Electrical Cable) product line is the company's fastest-growing segment; it grew double digits again sequentially and reached record revenue.
• Customer Concentration:
• 4 hyperscale customers each accounted for more than 10% of revenue.
• Shares of the top 4 customers: 42%, 24%, 16%, and 11%.
• A 5th hyperscale customer started contributing revenue.
FQ3 2026 Financial Guidance

• Revenue:
• Expected in the $335–345M range.
• The midpoint implies about 27% sequential growth over FQ2.
• Consensus expectation: $247.6M.

• Margins and Expenses (Non-GAAP):
• Gross margin: 64–66% range.
• Operating expenses: $68–72M.
• Share count (diluted, weighted average): ~194M.

• Full-Year Expectations (FY26):
• Sequential revenue growth expected to continue in "mid-single-digit" percentages each quarter.
• More than 170% year-over-year revenue growth expected.
• Non-GAAP net margin expected to be around 45% for FY26, and net income expected to grow more than 4x year over year.
• Non-GAAP operating expenses expected to increase about 50% vs FY25.
Strategic and Operational Highlights
Main Growth Pillars (5 main areas):
AECs (Active Electrical Cables)
• The company’s fastest-growing segment.
• Each of the 4 hyperscale customers provides more than 10% of total revenue.
• AECs have started replacing optical solutions in rack-to-rack connections (up to 7 meters).
• 100G/lane and future 200G/lane speeds provide about 1000x higher reliability and about half the power consumption compared with traditional optical modules.

IC Solutions (Retimers and Optical DSPs)
• Used in traditional switching fabrics and the fast-growing AI server segment.
• Features such as MACsec, gearbox functions, and software programmability are in demand.
• 50G and 100G/lane deployments are the main growth areas; strong interest in 200G/lane solutions.
• PCIe retimer and AEC families progressing as planned; design wins in FY26, meaningful production revenue in FY27.
Zero Flap Optics (ZF Optics)
• Described as the first laser-based optical interconnect family designed to deliver AEC-class reliability.
• Provides telemetry that detects and eliminates link flaps before they occur.
• Live data center trials underway with a leading partner; samples to a second U.S. hyperscaler planned this fiscal year.
• First revenue expected in FY27; long-term opportunity expected to be multibillion-dollar (multi-B).
ALCs (Active LED Cables)
• A microLED-based pluggable optical solution.
• ALCs offer similar reliability and power profile to AECs, but with thinner cable diameter and up to 30-meter reach.
• First samples expected in FY27; revenue ramp expected in FY28.
• The total addressable market for ALCs is expected to be more than twice the size of the AEC market long term.
OmniConnect Gearbox Solutions
• Aiming to redefine memory-processor interconnect on the XPU (GPU/ASIC etc.) side.
• First product “Weaver” gearbox connects to DDR memory via 112G VSR SerDes, offering:
• About 30x increase in memory capacity,
• About 8x increase in bandwidth compared with today’s HBM-based systems.
• First customer plans 2 TB memory capacity.
• Market expected to become multi-B toward the end of the decade; first revenue in FY28.
Total Addressable Market (TAM):

• Expected to exceed $10B in coming years.
• This figure is more than 3x the level from 18 months ago.
Cash, Balance Sheet, and Cash Flow
• Cash and Cash Equivalents:
• Quarter-end: $813.6M
• Up $333.9M sequentially.

• Operating Cash Flow:
• $61.7M.
• Capital Expenditures (CapEx):
• $23.2M.
• Free Cash Flow:
• $38.5M.
• Inventory:
• $150.2M.

Customer and Product Dynamics

• Working with 6 U.S. hyperscalers and several major players in Asia.
• Each hyperscaler is treated as a separate market.
• Strong demand visibility extending 12 months (in some cases longer).
• Credo states it is the leader in the AEC market and has taken action with the ITC regarding IP violations.

Margin Outlook and Expenses
• Target long-term non-GAAP gross margin range: 63–65%.
• Q3 operating expenses guidance: $68–72M, due to R&D increases, Hyperlume team, and additional hiring.
Key Highlights From the Q&A
• ALC and microLED:
• ALC market size could be more than twice the AEC market due to more connections and higher ASPs.

• SerDes and Line Rates:
• 25G, 50G, 100G/lane solutions already in production.
• ASP uplift expected with 200G transition.
• Supply / Foundry Capacity:
• Credo uses older nodes like 12nm and small die sizes to limit pressure.
• Optical Transceiver Market:
• Zero Flap optics targets differentiated value, not commodity markets.
• Customer Demand Timing:
• AEC orders align with GPU/ASIC orders.

Management’s Overall Message
• FQ2 2026 results are described as the strongest to date.
• Growth in AI cluster scale and complexity makes Credo’s solutions increasingly critical.
• Management expects continuing growth in AEC and IC, plus additional ramps from ZF optics, ALC, and OmniConnect gearboxes.
• Long-term revenue potential referenced as moving from $1B to $5B and beyond.