Summary
- I believe Credo’s AI interconnect thesis is validated by triple-digit revenue growth, with its AECs the de facto standard for inter-rack connectivity.
- Q2 FY26 revenue rose 20% sequentially to $268M, beating guidance and the Street’s consensus ($235M). Profitability and cash…
Summary
- I believe Credo’s AI interconnect thesis is validated by triple-digit revenue growth, with its AECs the de facto standard for inter-rack connectivity.
- Q2 FY26 revenue rose 20% sequentially to $268M, beating guidance and the Street’s consensus ($235M). Profitability and cash flow followed through.
- Non-GAAP gross margin was 67.7%, non-GAAP net income was $128M, operating cash flow was $61.7M, and free cash flow was $38.5M. The trend in margin is positive, but there are risks.
- Heavy customer concentration (top four customers were 42%, 24%, 16%, 11% of Q2 revenue) and margin normalization toward 63%-65% could spook some investors.
- Overall, I believe the setup is favorable. Fundamentals are strong, the narrative is exposed to the AI buildout, and the chart looks decent. My rating is a buy.
Maks_Lab/iStock via Getty Images
I initiate coverage on Credo Technology Group (CRDO) after a record Q2 FY26 that validated the AI interconnect thesis. Revenue momentum (which is up in the triple-digit growth, and projected to remain in the triple digits for
This article was written by
9.95K Followers
**Analyst’s Disclosure:**I/we have a beneficial long position in the shares of SOXL either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Seeking Alpha’s Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.
Quick Insights
Four hyperscaler customers account for 93% of revenue, making CRDO highly exposed to continued AI datacenter CapEx; any slowdown could materially impact results.
Gross margins are expected to step down from 67.7% in Q2 to a long-term range of 63%–65%; with shares trading at 81x forward earnings, margin attrition could spook investors.
ZeroFlap optics, now live with one customer and sampling with another, is framed as a multi-billion-dollar opportunity with initial revenues starting fiscal 2027, supporting continued top-line momentum.