Credo Technology falls on margin pressure despite earnings beat

Credo Technology Group Holding Ltd. (NASDAQ: CRDO ) stock fell Wednesday despite a fiscal first-quarter earnings and revenue beat.

Investors focused on shrinking margins, higher costs and lofty expectations.

Credo shares had gained 43.6% this year through Tuesday's close.

That rally may have also left the stock vulnerable to profit-taking.

After Tuesday's closing bell, Credo reported fiscal 2027 first-quarter revenue of $479 million.

That beat the analyst estimate of $471.77 million.

Adjusted earnings of $1.20 per share topped the $1.17 consensus.

Revenue increased 10% from the prior quarter and 115% from a year earlier.

It exceeded the high end of Credo's guidance.

The period also marked its seventh straight quarter of triple-digit annual growth.

Margins Narrow As Costs Surge GAAP gross margin fell to 64.5% from 68.2% in the prior quarter.

It was also down from 67.4% a year earlier.

GAAP operating income rose to $120.7 million from $60.7 million a year ago.

However, it declined from $155.8 million in the previous quarter.

The GAAP operating margin narrowed to 25.2%.

That compared with 35.7% in the prior quarter and 27.2% a year earlier.

GAAP operating expenses more than doubled to $188.4 million from $89.6 million.

Research and development spending climbed to $114.5 million from $52.4 million.

Selling, general and administrative expenses rose to $73.9 million from $37.2 million.

Credo Profit More Than Doubles Net income increased to $129.4 million, or 67 cents per share.

That compared with $63.4 million, or 34 cents per share, a year earlier.

Adjusted net income surged 140% to $236.3 million.

Adjusted operating income rose to $230.6 million from $96.2 million.

The adjusted operating margin reached 48.2%.

Operating cash flow totaled $90.2 million, while free cash flow reached $82.9 million.

Credo ended the quarter with $764.3 million in cash, cash equivalents and short-term investments.

AI Demand Drives Connectivity Growth Credo said rising AI infrastructure investment continues to fuel demand.

Larger computing clusters, faster data rates and more complex networks are creating opportunities across optical and copper products.

The active electrical cable business remains Credo's largest segment.

Growth came from deeper ties with five hyperscalers, rising demand from neo-cloud companies and the shift toward 200-gig-per-lane and 1.6-terabit ports.

Optical digital signal processor revenue reached a first-quarter record.

Credo expects its first 1.6-terabit DSP revenue later in fiscal 2027.

The company also secured two major design wins for next-generation products.

Those projects should ramp in fiscal 2028, although some activity could begin late in fiscal 2027.

Following its DustPhotonics acquisition, Credo recorded its first silicon photonics photonic integrated circuit revenue.

The company expects its 800-gigabit and 1.6-terabit transceiver products to ramp.