Credo Technology Group Holding Ltd CRDO is scheduled to report first-quarter fiscal 2027 results on Sept. 1.
The Zacks Consensus Estimate for the bottom line for the to-be-reported quarter stands at $1.16, indicating a 123.1% year-over-year surge. The estimate has remained unchanged in the past 30 days.
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The Zacks Consensus Estimate for total revenues is pinned at $470.7 million, implying an 111% increase. For the fiscal first quarter, CRDO expects revenues to be between $465 million and $475 million.
Credo’s earnings beat the Zacks Consensus Estimate in each of the trailing four quarters, with an average surprise of 27.4%.
Let us see how CRDO is expected to fare in terms of revenues and earnings this time.
What Our Model Reveals
Our proven model does not conclusively predict an earnings beat for CRDO this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of an earnings beat. This is not the case here.
You can uncover the best stocks to buy or sell before they are reported with our Earnings ESP Filter.
CRDO has an Earnings ESP of 0.00% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.
Credo Technology Group Holding Ltd. Price and Consensus
Credo Technology Group Holding Ltd. price-consensus-chart | Credo Technology Group Holding Ltd. Quote
Factors to Note Before CRDO’s Q1 Results
Credo’s fiscal first-quarter performance is likely to have been driven by strong demand for its active electrical cables (“AEC”) and optical products, along with deeper engagement with hyperscalers. The company continues to see broader AEC adoption as AI clusters increase in size and customers place greater emphasis on network reliability, power efficiency and signal integrity.
Four hyperscalers each contributed more than 10% of total revenues in the last reported quarter, reflecting strong adoption of Credo’s high-reliability AEC solutions. Management believes AEC adoption remains in the early stages of penetration, with increasing adoption across hyperscalers and Neo cloud customers supporting continued growth.
Credo continues to see momentum in 100-gig and 200-gig per-lane retimers, along with improving traction for PCIe Gen 6 products. It is also witnessing increased interest in Blue Heron 200-gig per-lane retimer targeted at scale-out and emerging scale-up networks and supports multiple high-speed protocols.
The optical portfolio represents an increasingly important growth vector, although management expects its most significant revenue acceleration to occur during the second half of fiscal 2027 rather than in the fiscal first quarter.
The company expects mid-single-digit sequential growth in the first half of fiscal 2027, followed by a stronger second-half acceleration buoyed by its optical portfolio. Management projects more than $600 million in optical revenues, with ZeroFlap optics, silicon photonics PICs and optical DSPs each contributing more than $100 million. This is expected to support more than 80% year-over-year revenue growth for the full year.
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The acquisition of DustPhotonics strengthens Credo’s high-speed optical connectivity portfolio with silicon photonics PIC technology. The deal adds advanced technology, including 800G and 1.6T solutions, and brings a roadmap to 3.2T solutions and beyond.
CRDO’s improving profitability is another thing investors need to watch for. In the last reported quarter, non-GAAP gross margin was 68.3% compared with 67.4% a year ago. Non-GAAP operating margin was 49.6% compared with 36.8% reported in the prior-year period. Non-GAAP net income hit $226.7 million, representing a 51.9% net margin.
For the fiscal first quarter, CRDO expects non-GAAP gross margin of 67% to 69%.
However, tougher competition and an uncertain macro backdrop due to a fluid tariff situation continue to pose challenges. On the last earnings call, Credo noted ongoing tightness in the supply chain. While the company has taken steps to secure capacity, disruptions could still affect its ability to meet demand.
Also, heavy reliance on a few customers creates concentration risks, leaving the company exposed to sharp revenue hits if any major client pulls back. Management expects three to four customers to remain above the 10% threshold in coming quarters.
Further, non-GAAP operating expenses are expected to be between $86 million and $90 million in the fiscal first quarter. This could pressure margins if revenue growth falters. Also, intensifying competition in the semiconductor space from the likes of bigshots like Broadcom Inc. AVGO and Marvell Technology, Inc. MRVL, as well as newer entrants like Astera Labs ALAB, remains a concern.
CRDO Stock vs. the Industry
CRDO’s shares have gained 110.4% in the past six months, outperforming the Electronics Semiconductor industry (up 21%), Zacks Computer And Technology (up 18%) and the S&P 500 (up 11.3%).
Price Performance
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AVGO, ALAB and MRVL have gained 16.6%, 152.3% and 198.6%, respectively, over the same time frame.
CRDO Trades at a Premium
Based on the price-to-earnings ratio, the company’s shares currently trade at 35.16X forward earnings, higher than the industry average of 13.47X.
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In comparison, Broadcom trades at a forward 12-month P/E of 20.86X, while Astera Labs and Marvell Technology trade at P/E multiples of 55.71X and 45.85X, respectively.
Our Viewpoint: CRDO Is a Hold Before Q1 Earnings
CRDO’s expanding AEC adoption and growing optical opportunity support a favorable long-term growth outlook.
However, premium valuation, customer concentration and supply-chain tightness warrant some caution ahead of upcoming results.
Given the balanced risk-reward profile, existing investors may retain CRDO, but new investors are better off waiting for an attractive entry point.
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This article originally published on Zacks Investment Research (zacks.com).