Revenue doubled, but the stock price plummeted by more than 10%! Credo (CRDO.US), which boasts the label of "AI copper collaboration explosion," hits a slowing profit margin.

Focusing on high-speed copper cables and optical modules within AI data centers, Credo Technology (CRDO.US) announced its latest performance report and future outlook after the U.S. stock market closed on Tuesday (Wednesday morning Beijing time). The company achieved a year-on-year revenue growth of 114.7% to $479 million for the first quarter of fiscal year 2027, which ended on August 1, 2026, surpassing Wall Street analysts recently raised expectations of $471.7 million. The latest performance and outlook from Credo Technology, combined with the recent signing of a multi-billion dollar cloud computing resource agreement by AI application leader Anthropic and strong semiconductor export data from South Korea, highlight that global demand for AI computing power is still in a large-scale expansion cycle that has not yet peaked. Additionally, the company's guidance for second quarter revenue is in the range of $525 million to $535 million, with a midpoint of $530 million representing a year-on-year growth of 97.8%, higher than the consensus expectation of $516.5 million. However, the company's GAAP gross margin declined by 290 basis points year-on-year and 370 basis points quarter-on-quarter to 64.5%. The midpoint of guidance for the second quarter has decreased to 63.9%. Relatively weak gross margin data has contributed to the company's stock price falling post-announcement, despite reporting strong core performance metrics and revenue outlook, with shares plunged more than 10% at one point. After Credo Technologys performance announcement, the stock price fell sharply, yet global investors remained strong in their risk appetite for the AI computing power supply chain after experiencing a deleveraging and de-crowding in AI in July. As of September 1, the Philadelphia Semiconductor Index was reported at 11,288.61 points, up approximately 59.4% year-to-date; this index had previously retreated nearly 29% from its June peak to the July 29 low, and rebounded over 20% from its low point in mid-August, crossing the technical bull market threshold again. The Korean KOSPI index was reported at 6,835.80 points, up 62.2% year-to-date; after a 22% drop in July, it rebounded 22% on August 13 from the July 30 low, officially returning to a technical bull market. In other words, July was characterized more by the unwinding of high crowding positions in AI trading rather than a peak in AI computing power capital expenditure from a fundamental perspective. The demand for AI infrastructure is shifting from large companies budget intentions to locking in multi-year computing capacity. Market research firm TrendForce estimates that capital expenditures by major cloud service providers will grow by 98% in 2026 and another 50% in 2027; the combined share of DRAM and NAND in their capital expenditures is expected to rise from 47% in 2026 to 68% in 2027. Contract prices for server DRAM are expected to increase by approximately 270% cumulatively by 2026, while enterprise SSDs are expected to rise about 235%, and HBM contract prices could still increase by 70% to 140% in 2027. According to media reports, Anthropic and Lambda, supported by NVIDIA Corporation, signed a cloud computing agreement worth approximately $35 billion covering around 350 megawatts of capacity in Texas; they also established a four-year, $45 billion computational lease arrangement with Nscale for about 460 megawatts. South Koreas exports surged 68.7% year-on-year to $98.26 billion in August, marking the 15th consecutive month of growth, exceeding expectations of 62.6%. Notably, chip exports reportedly increased to a record $46.65 billion, approximately three times the level of the same period last year. Performance surges but stock prices "disconnect": Credo's copper cable and AI interconnect boom hit a profitability speed bump. Credo's current core revenue mainly comes from AEC (Active Copper Cable) and high-speed optical interconnect chips for data centers, with NVIDIA Corporation being one of the company's largest customers. However, it is overly simplistic to characterize the company's revenue as merely being a "copper cable supplier for NVIDIA Corporation's NVL racks." Credo disclosed to the SEC that AEC's main applications focus on server-to-top-of-rack (ToR) high-speed switches, leaf-spine router connections, and GPU to network switch connections. More strictly, physical cables are typically connected to the NIC, DPU/SuperNIC ports on GPU servers or accelerator trays, linking to ToR or back-end switch ports, rather than directly connecting bare GPU chips. Credo's ZeroFlap AEC, which can reach up to 7 meters, is used for high-speed connections from GPUs to network switches in liquid-cooled AI racks, as well as between servers and top-of-rack switches. The company also recently showcased the NVIDIA Corporations Rubin structure NVL144 rack product and the next-generation AI GPU clusterRubin Ultra NVL576 structure, fully wired with 1.6T ZeroFlap AEC. In addition to AEC, Credo also offers PAM4 DSP for 400G/800G/1.6T optical modules, a series of ZeroFlap optical transceiver modules with link telemetry capabilities, data center silicon photonics/PIC, PCIe 6.0 and CXL 3.x retimers, PCIe AEC, OmniConnect and Weaver memory fanout chips for memory expansion and scale-up/scale-out applications, SerDes chip/IP, microLED active cables with lengths of around 30 meters, and the PILOT link diagnostic platform. The latest performance data shows that Credo Technology's first quarter revenue grew by 114.7% year-on-year to $479 million, exceeding analysts expectations of $471.7 million by 1.5%. Adjusted earnings per share also grew by 130.8% year-on-year to $1.20, 2.6% above the anticipated $1.17. The revenue guidance for the second quarter ranges from $525 million to $535 million, with a midpoint of $530 million, representing a year-on-year growth of 97.8% and 2.6% higher than the expected $516.5 million. However, the GAAP gross margin fell by 290 basis points year-on-year and 370 basis points quarter-on-quarter to 64.5%. Thus, the core reason for the post-announcement stock price decline was not a weakening in AI demand, but investors starting to require high growth and profitability to be delivered in tandem. This sell-off may reflect pressures on profitability beneath rapid sales growth. The GAAP gross margin fell to 64.5% from 68.2% in the previous quarter and 67.4% a year earlier. GAAP operating expenses more than doubled from $89.6 million the previous year to $188.4 million. Credo remains a primary beneficiary of spending in AI data centers, which require high-speed connections between processors, memory, and network devices. The company is still focusing on increasing R&D investment. R&D expenses rose from $52.4 million a year earlier to $114.5 million. Selling, general, and administrative expenses increased from $37.2 million to $73.9 million. GAAP operating profit increased from $60.7 million a year earlier to $120.7 million, but fell short of the previous quarter's $155.8 million. Operating margin narrowed from 35.7% in the previous quarter and 27.2% a year earlier to 25.2%. Net profit rose from $63.4 million, or $0.34 per share a year earlier, to $129.4 million, or $0.67 per share. Adjusted net profit grew by 140% year-on-year to $236.3 million. Adjusted operating profit was $230.6 million, higher than the $96.2 million from the previous year. Credo's first quarter non-GAAP operating margin was 48.2%, up 510 basis points year-on-year but down 140 basis points quarter-on-quarter; the non-GAAP net profit margin was 49.3%, an increase of 520 basis points year-on-year but down 260 basis points quarter-on-quarter. These profit metrics indicate that adjusted core profitability remains strong, but growth margins are no longer continuously expanding as they were in previous quarters. The company anticipates that next quarter's GAAP gross margin will be between 62.9% and 64.9%. The midpoint, 63.9%, will be lower than the first quarter's 64.5%. GAAP operating expenses are expected to rise to between $199 million and $204 million. The expected adjusted gross margin is projected to be between 67% and 69%, compared to 68% in the first quarter; adjusted operating expenses are expected to be between $100 million and $105 million, higher than $95.2 million in the first quarter. Credos billion-dollar light-copper synergy strong growth logic The expansion of NVIDIA Corporations AI GPU clusters and Alphabet Inc.'s Class C TPU computing clusters is a key underlying driver of demand for Credo. In addition to AEC copper cables, Credo provides 400G, 800G, and 1.6T ZeroFlap optical modules, optical communication DSPs and silicon photonics integrated circuits, OmniConnect memory and chip-to-chip interconnects, Ethernet and PCIe retimers, SerDes chips and licensing, and microLED active Optical Cable Corporation, along with the PILOT software platform used for monitoring link health and preventing disconnections. Therefore, a more accurate positioning of Credo is that of a copper-optical fusion AI interconnect platform covering chip to cluster, from millimeters to kilometers, rather than a single copper cable company. The increased copper connection demand from GPU racks and the amplified demand for optical connections from cluster expansion suggests Credo is likely to benefit from incremental growth on both ends; its growth value comes not only from high-speed copper cables inside NVL racks, but also from the extensive product matrix covering server networks, internal data center optical interconnects, PCIe, and memory expansion. The company's CEO, Bill Brennan, stated in the latest earnings announcement: Our product portfolio currently covers a connection range from millimeters to kilometers and spans optical and copper connection solutions. The industrial logic of high-speed interconnections within data centers is not about "light replacing copper," but rather a coexistence dictated by transmission distance, power consumption, and network hierarchy divisions: AEC is suitable for internal rack and short-distance inter-rack connections, featuring advantages of low power, low cost, and high reliability; pluggable optical modules and optical DSP handle longer-distance switch-to-switch, leaf-spine, and cross-rack connections; microLED active cables attempt to cover the mid-distance range between copper and traditional optical modules. As the number of GPUs increases, the number of short-distance copper connection ports grows in tandem; as clusters expand, the number of long-distance optical connections increases even faster. Thus, the emphasis by Wall Street financial giant Citigroup on the expansion of AI capital expenditures and Morgan Stanley's recent judgment of "long-term coexistence of copper and optics in AI data centers, transitioning in phases to optical interconnections" support Credo's potential to gain both current AEC cash flow and future optical interconnection system increments, rather than betting on a single transmission medium. Light-copper synergistic explosive growth is likely to become one of the core themes for reevaluating Credo's valuation in the coming years. BNP Paribas's target price of $275 and logic of a "potential growth market of at least over $10 billion" effectively illustrate Credo's upgrade from a single strength in AEC to a diversified interconnection platform driven by AEC, ZeroFlap optical modules, optical DSP, ALC, and OmniConnect. Since the beginning of this year, Credo's share price has risen over 43%, significantly outperforming the S&P 500 index. However, despite Credo's strong performance and revenue outlook, the stock still fell, indicating that investment perspectives can no longer overlook gross margins, customer concentration, and the realization of new products. The company reported fiscal year 2027 first quarter revenue of $479 million, a 114.7% year-on-year growth; adjusted earnings per share were $1.20, higher than the market expectation of $1.17; and second quarter revenue guidance is set at between $525 million and $535 million. Following the earnings announcement, the stock price still fellplummeting over 10% to around $186sufficiently reflecting that market funds are no longer satisfied with high revenue and quarterly forecasts but are beginning to scrutinize growth quality, product structure, and margin levels. With NVIDIA Corporation once again revealing unexpectedly strong performance and robust future forecasts, the trading focus on AI computing power themes may not only revolve around NVIDIA Corporation's GPU computing cluster but could further accelerate to cover the entire AI computing supply chain, including HBM/DRAM/NAND, CoWoS/3D advanced packaging, data center CPUs, high-performance network infrastructure, high-speed copper cables/optical interconnects, and data center power chain infrastructure. Financial giants on Wall Street, including Citigroup, Goldman Sachs Group, Inc., and Morgan Stanley, maintain a positive outlook on the demand for NVIDIA Corporation's next-generation computing architecture Vera Rubin, the growth visibility of GPU clusters in 2027 and beyond, and the expansion trends of AI infrastructure. Their unanimous bullish judgments highlight the sustained strength of AI computing demand, the scaling of Vera Rubin, and the ongoing enhancement of NVIDIA Corporations comprehensive hardware and software platform advantages. This is why 19 analysts on Wall Street have assigned Credo an average target price of approximately $268.39, with the highest target reaching as high as $350.