Credo targets $600M optical revenue as AI connectivity accelerates

Credo Technology expects its optical portfolio to exceed $600 million in fiscal 2027 revenue, cementing silicon photonics as a core pillar of AI data center connectivity as hyperscalers scale infrastructure.

"The optical ramp is the second-half story," CEO Bill Brennan said on the earnings call, framing ZeroFlap Optics, silicon photonics PICs, and existing DSPs as three product lines each targeted to clear $100 million in revenue this fiscal year.

Credo reported Q1 FY27 revenue of $479 million, up 115 percent year over year and above the $471.7 million consensus, with adjusted EPS of $1.20 beating the $1.17 estimate. Adjusted gross margin held at 68 percent, and management guided Q2 revenue to $525 million to $535 million with gross margin of 67 to 69 percent.

Shares fell 11.5 percent to $182.79 in premarket trading as investors weighed margin dilution from new optical products against a fiscal 2027 framework calling for revenue growth above 80 percent. The stock trades at 33.5 times forward earnings with a $38.5 billion market cap.

The optical inflection

Credo's fiscal 2026 revenue more than tripled to $1.3 billion, with non-GAAP net income rising more than fivefold to $662 million. The company closed the year with $1.4 billion in cash after generating $177.5 million in free cash flow in Q4 alone.

Management framed fiscal 2027 as mid-single-digit sequential growth in the first half with an inflection beginning in the second half, powered by the optical product stack. The $600 million optical target represents roughly a quarter of the $2.46 billion in revenue consensus currently projects for the fiscal year.

The optical push puts Credo in direct competition with Marvell Technology and Astera Labs for hyperscaler connectivity sockets. Marvell has been expanding its electro-optics portfolio, while Astera Labs has pushed deeper into active electrical cables and optical interconnect for AI clusters. Credo's silicon photonics approach — integrating photonic components directly onto silicon — targets the bandwidth bottleneck that emerges as AI clusters scale from thousands to hundreds of thousands of accelerators. The technology converts electrical signals to light at the chip level, enabling higher data rates over longer distances than traditional copper-based interconnects.

Margin math and customer concentration

The Q1 gross margin of 68 percent sits at the high end of the 67 to 69 percent guidance range, but analysts flagged that new optical products carry different cost structures than Credo's established AEC franchise. Jefferies analyst Blayne Curtis noted the margin trajectory will hinge on product mix as optical volumes scale. Management guided non-GAAP operating expenses of $86 million to $90 million for Q2, with full-year OpEx expected to rise roughly 50 percent as the company invests in the optical ramp.

Customer concentration remains the other watchpoint. The top four customers represented 34 percent, 27 percent, 16 percent, and 10 percent of revenue in Q4, leaving results sensitive to spending decisions by a small group of hyperscalers. Brennan sized the neocloud ramp at roughly 20 percent of revenue collectively over time.

Hyperscaler capital spending on AI infrastructure has driven a surge in demand for high-speed connectivity components. Credo's AEC products have been the primary growth engine, but the optical portfolio represents the next leg of expansion as data center architectures shift toward optical interconnect for scale-out clusters. The company's ability to execute on this transition will be tested over the next two quarters as ZeroFlap Optics and silicon photonics PICs move from sampling to volume production.

Credo has beaten EPS estimates in eight consecutive quarters, with the most recent quarter delivering 12.17 percent upside. Management's conservative guidance pattern — Q3 FY26 guided to $335 million to $345 million and delivered $407 million — has historically left room for upside, though the scale of the optical ramp introduces execution risk that prior quarters did not carry.

The stock's 57 percent year-to-date gain heading into earnings had priced in much of the optical upside, leaving little cushion for margin disappointment. With fiscal 2028 consensus revenue at $3.69 billion and EPS at $9.12, the market is already underwriting a sustained second-half acceleration into next year. Whether Credo can hold gross margins near 68 percent as optical volumes scale will determine if that underwriting is justified.

This article is for informational purposes only and does not constitute investment advice.