Credo Technology Group Holding Ltd (NASDAQ: CRDO) reported first-quarter fiscal-year 2027 results that exceeded Wall Street expectations, though shares declined sharply in after-hours and premarket trading. The company posted adjusted earnings per share of $1.20, beating the consensus estimate of $1.17. Quarterly revenue came in at $479 million, surpassing the projected $471.77 million.

The results mark a significant year-over-year expansion for the optical interconnect specialist. Revenue grew 114.7% compared to the same quarter last year and rose 9.6% sequentially. This period marked its seventh straight quarter of triple-digit annual growth. The adjusted EPS of $1.20 also represents more than double the 52 cents per share reported in the year-ago period.

Margins Narrow As Costs Surge

Despite the top-line beat, GAAP margins contracted due to rising operating expenses. GAAP gross margin fell to 64.5% from 68.2% in the prior quarter and down from 67.4% a year earlier. GAAP operating income rose to $120.7 million from $60.7 million a year ago but declined from $155.8 million in the previous quarter. The GAAP operating margin narrowed to 25.2%, 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.

Profit Growth and Cash Flow

Net income increased to $129.4 million, or 67 cents per share, 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, with the adjusted operating margin reaching 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 stated that 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, driven by deeper ties with five hyperscalers and rising demand from neo-cloud companies.

Optical digital signal processor revenue reached a first-quarter record. The company secured two major design wins for next-generation products expected to ramp in fiscal 2028. Following its DustPhotonics acquisition, Credo recorded its first silicon photonics photonic integrated circuit revenue. Zero Flap Optics has started production shipments, and the retimer business posted record first-quarter revenue.

CEO Bill Brennan noted, "Our portfolio now spans connectivity from millimeters to kilometers, with solutions across optics and copper. As AI infrastructure scales, we will continue to provide an innovative suite of reliable and energy-efficient connectivity solutions for the data center."

Analyst Ratings and Price Targets

Several Wall Street analysts have adjusted their outlook for Credo Technology following the earnings announcement. B of A Securities analyst Vivek Arya maintained a Buy rating but lowered the price target from $340 to $275. Rosenblatt analyst Mike Genovese maintained a Neutral rating and raised the price target from $215 to $235.

TD Cowen’s Sean O’Loughlin and Barclays’ Thomas O’Malley both maintain targets of $300, set in August and July respectively. Susquehanna’s Christopher Rolland maintains a Positive rating with a $250 target.

What to Watch

Investors will be closely tracking progress toward Credo’s optical revenue targets, with management projecting more than $600 million for fiscal 2027, split roughly evenly across ZeroFlap optics, silicon photonics, and optical DSPs. Hyperscaler customer concentration will also be in focus, since four hyperscalers each contributed more than 10% of total revenue last quarter.

Credo Technology expects second-quarter revenue to be in the range of $525 million to $535 million, versus estimates of $515.79 million. The company anticipates adjusted gross margin between 67% and 69% in the second quarter. It expects full-year adjusted gross margin to remain broadly in line with fiscal 2026.

Technical Setup

Credo is trading about 10.8% below its 20-day SMA ($240.06) and about 9.5% below its 50-day SMA ($236.55). It is also about 2.2% below the 100-day SMA ($218.89). Momentum-wise, MACD is below its signal line and the histogram is negative. The stock remains about 22.3% above its 200-day SMA ($175.05).

Key levels traders tend to watch include:

• Key Support: $211.50
• Key Resistance: $241.00

Market Reaction

Despite the earnings beat, CRDO shares fell 4.43% in Tuesday’s after-hours session, trading at $197.47. In premarket trading on Wednesday, shares were down 10.3% at $185.32. Investors focused on shrinking margins, higher costs and lofty expectations. Credo shares had gained 43.6% this year through Tuesday’s close, leaving the stock vulnerable to profit-taking.

What the Numbers Show

The divergence between GAAP and adjusted metrics highlights the impact of aggressive R&D spending. While GAAP operating margin contracted to 25.2% from 35.7% sequentially due to R&D doubling to $114.5 million, the adjusted operating margin expanded to 48.2%. This suggests that the cost increases are primarily strategic investments in next-generation products like silicon photonics and DSPs, rather than operational inefficiencies. The strong free cash flow of $82.9 million supports this view, indicating that despite the cash outflow for R&D, core operations remain highly efficient.

Credo Technology Group (NASDAQ: CRDO) forecast second-quarter sales between $525.000 million and $535.000 million, exceeding the consensus analyst estimate of $515.793 million.

The guidance indicates robust demand for the company’s connectivity solutions, with the lower end of the range already representing a significant upside to market expectations.

Guidance vs Estimate

What the Numbers Show

The company’s revenue guidance implies a beat of at least $9.207 million over the midpoint estimate if the low end is achieved, and up to $19.207 million if the high end is realized. This divergence highlights a potential acceleration in order conversion or pricing power not fully captured in prior analyst models.