Shares of Credo Technology plunged 10.1% to $185.84 as investors punished the data-center connectivity chipmaker for deteriorating profitability despite a top-and-bottom-line beat. Revenue hit approximately $479 million, topping the $471.77 million consensus , and adjusted earnings of $1.20 per share beat estimates of $1.17 . But the numbers beneath the headline told a less flattering story — and Wall Street sold first and asked questions later.
Revenue Doubled, but Profits Didn't Keep Pace
Revenue was up 114.7% year-over-year and 9.6% sequentially — the seventh straight quarter of triple-digit annual growth. Yet GAAP gross margin — the share of each dollar of revenue left after production costs — fell to 64.5%, down from 68.2% last quarter . That 370-basis-point drop means Credo kept less profit on every chip it shipped, likely reflecting a shift toward newer, lower-margin optical products that are still ramping up in scale.
Spending Jumped Faster Than Expected
Non-GAAP operating income of $230.6 million missed the $246 million estimate . The culprit: operating expenses that climbed sharply as Credo hires engineers and invests in its expanding optical product line. Q2 non-GAAP operating expenses are guided to $100–$105 million , up from the $86–$90 million range just last quarter . That is a roughly 15–17% sequential jump in spending — a pace that spooked investors already wary of the stock's premium valuation.
The Guidance Was Actually Strong — It Just Wasn't Enough
Q2 revenue guidance of $525–$535 million exceeded the $516 million consensus , signaling that demand from hyperscale cloud customers building out AI data centers remains robust. Credo also projected full-year optical revenue above $600 million , with three optical product categories each expected to generate over $100 million . But with the stock recently trading around 40 times forward earnings (the price-to-earnings ratio, a common gauge of how expensive a stock is), the magnitude of earnings beats is compressing as forecasts rise — leaving less room for upside surprises.
The Core Tension for Shareholders Credo is spending aggressively to become a full-stack connectivity supplier — copper cables and optical components — for the AI infrastructure boom. Management targets non-GAAP net margins near 50% for fiscal 2027 . Whether the margin dip is a temporary investment phase or a structural shift will determine if this selloff is a buying opportunity or an early warning.