CRDO — Q1 2026 Financial Report Analysis (Fiscal Q1 2027)

Credo's revenue more than doubled to $479.0 million in the quarter ended August 1, 2026 (its fiscal Q1 2027), up 114.7% from a year earlier and 9.6% from the prior quarter. The 10-Q attributes over 90% of the $255.9 million increase to higher unit shipments of its Active Electrical Cables (AECs) — copper cables with a Credo chip in each end that cleans up the signal, used to link servers and switches inside AI data centers — as hyperscale customers ramped deployments. Profit grew more slowly than sales on a GAAP basis, though: net income rose 104% to $129.4 million, and GAAP operating margin actually slipped, because this was the first quarter carrying the costs of the $1.25 billion DustPhotonics acquisition and a sharp step-up in stock-based pay.

At a glance

• Revenue $479.0M, +114.7% YoY — and above the top of management's own $465–475 million guidance from June; AEC volume did almost all of the work.
• GAAP operating margin 25.2%, down from 27.2% — the share of revenue left after running the business fell even as sales doubled, because of acquisition amortization, deal costs and stock compensation. Excluding those, the company's adjusted margin rose to 48.2% from 43.1%.
• Cash + short-term investments $764.3M, down from $1.44B in May — Credo paid $735.6 million net cash for DustPhotonics in the quarter; it still has no debt on the balance sheet.

Results versus a year ago

Against the immediately preceding quarter (fiscal Q4 2026, to May 2, 2026), revenue grew from $437.0 million, but GAAP net income fell from $169.1 million and GAAP operating income from $155.8 million — again the acquisition and stock-pay costs, not weaker underlying business. Adjusted (non-GAAP) net income rose to $236.3 million from $226.7 million.

Takeaway: The demand story is intact — Credo beat its own revenue guidance and is guiding to another ~11% sequential jump — but the quarter marks a shift in what shareholders actually keep. Stock-based pay of $88 million and $22 million of acquisition-related charges now separate an "adjusted" 48% operating margin from a GAAP 25%, and that gap is set to widen next quarter (guidance implies about $97 million of stock compensation in operating expenses alone).

What drove the quarter

AEC volume, at a handful of very large customers. The MD&A ties the growth almost entirely to AEC shipments to hyperscale data center operators. Concentration remains extreme even after improving slightly: two contracting customers (often the contract manufacturers who place orders on behalf of the end buyer) accounted for 43% and 28% of revenue, versus 50% and 35% a year ago. Looked at by end customer, four buyers made up 84% of revenue (28%, 33%, 13% and 10%), and the fourth only crossed the 10% threshold this year. Customer A alone accounted for 57% of receivables at quarter-end.

Where products shipped changed sharply. Revenue by shipping destination was $255.4 million to the United States (from $82.8 million), $91.2 million to Hong Kong, $74.5 million to Malaysia (from $6.4 million) and just $1.1 million to mainland China (from $51.8 million). These figures reflect where cables are delivered — usually to whoever assembles the servers — rather than who ultimately uses them, so they read more as a shift in customers' supply chains than as Credo losing Chinese demand. North American customers were 53% of revenue, up from 37%.

Costs grew about as fast as sales, and faster in places. Research and development rose 118% to $114.5 million: $25.8 million more stock compensation, $13.0 million more personnel cost from new hires, and $17.8 million more design and lab spending for new products. Selling, general and administrative expense rose 99% to $73.9 million, of which $21.3 million was stock compensation and $7.4 million was consulting fees and DustPhotonics acquisition costs.

The DustPhotonics deal

On May 28, 2026, Credo bought DustPhotonics, a developer of silicon-photonics chips used inside optical transceivers (the light-based counterpart to its copper cables), for total consideration of $1.25 billion: $769.6 million in cash, $169.1 million in newly issued shares, about $2.5 million for replacement equity awards, and $310.0 million of contingent "earn-out" consideration tied to future financial targets (recorded as $300.0 million of equity and $10.0 million of liability). Of the price, $895.8 million went to goodwill — the premium paid above the value of identifiable assets — and $361.7 million to intangible assets such as acquired technology. Those intangibles are now being written down ("amortized") at roughly $11.6 million a quarter, $11.0 million of which lands in cost of revenue. That single item explains the 2.9-point drop in GAAP gross margin, per the 10-Q; on an adjusted basis gross margin was 68.0%, up from 67.6%.

The 10-Q says DustPhotonics' contribution was not material enough to present pro-forma results, so the quarter's revenue growth is organic, not bought.

What the headline numbers hide

• Cash conversion was weak this quarter. Operating cash flow of $90.2 million was only about 70% of the $129.4 million of net income, even though stock compensation ($88.0 million) is a non-cash charge that normally pushes cash flow above profit. Working capital absorbed $151.3 million: receivables rose $54.5 million, inventory rose $61.5 million "to support unfulfilled backlog and related new product ramps," and Credo paid refundable deposits to reserve manufacturing capacity. Free cash flow (operating cash flow minus $7.3 million of equipment purchases) was about $82.9 million.
• Inventory and receivables are outrunning sales. Over the quarter, inventory grew 24.8% (to $313.1 million, of which $4.6 million came with the acquisition) and receivables 23.7% (to $288.8 million), against 9.6% sequential revenue growth. Management's explanation — building for backlog — is plausible for a company guiding higher, but it is the line to watch if demand slows.
• More cash commitments are coming. Credo had $88.4 million of capacity-reservation deposits outstanding with assembly subcontractors and, after quarter-end, signed another agreement requiring $102.4 million more in fiscal 2027. Unconditional purchase commitments to suppliers totalled $212.7 million.
• The adjusted-vs-GAAP gap is large and growing. Non-GAAP net income of $236.3 million excludes $88.0 million of stock compensation, $11.6 million of amortization and $10.4 million of acquisition and integration costs. Only the last is genuinely one-off; stock pay is a recurring cost of the engineers Credo is hiring, which is why we use GAAP figures in the metrics above.
• EPS was diluted slightly; taxes and interest were not the story. Diluted shares rose 5.3% to 194.4 million (share-based awards plus the DustPhotonics stock), so EPS grew 97% against 104% net income growth. The income tax line was a $0.6 million benefit versus a $1.3 million charge a year ago — immaterial at this scale — and other income (mostly interest on cash) added $8.1 million, up from $3.9 million, which will shrink now that the cash pile is roughly halved.
• Guidance versus the prior guide: revenue beat the June range ($465–475 million). Costs did not match it: non-GAAP operating expenses of $95.2 million came in above the $86–90 million range, and GAAP gross margin of 64.5% was well under the 66.9–68.9% guided — the guide appears not to have included DustPhotonics purchase accounting, while the adjusted gross margin landed within its 67–69% range.

Outlook

For fiscal Q2 2027 (the quarter ending October 31, 2026), management guides:

• Revenue of $525–535 million, about 10.6% above Q1 at the midpoint.
• GAAP gross margin of 62.9–64.9% (non-GAAP 67.0–69.0%); the reconciliation attributes 2.8 points to acquisition amortization and 1.3 points to stock compensation.
• GAAP operating expenses of $199–204 million, of which about $97 million is stock compensation and $2 million acquisition costs; non-GAAP operating expenses of $100–105 million.

Our read: the top line keeps compounding on hyperscaler AEC demand, and the DustPhotonics purchase is a bet that Credo can sell the same customers the optical links that take over at longer distances. But GAAP profitability is now growing more slowly than revenue, cash is being tied up in inventory, receivables and supplier deposits, and roughly four end customers still decide the outcome. The next two things to check are whether operating cash flow catches back up with net income in Q2, and whether any optical revenue from DustPhotonics shows up as a disclosed driver rather than staying "not material." Credo's next results (fiscal Q2 2027) would typically land in early December 2026, judging by last year's December 2 10-Q filing.

Source: Credo Technology Group Holding Ltd Form 10-Q for the quarter ended August 1, 2026 (filed September 2, 2026) and earnings release (Exhibit 99.1 to the Form 8-K filed September 1, 2026). Figures are GAAP unless labelled non-GAAP.