Credo Tech Q1 Revenue Beats Estimates Amid 43% Stock Slide
Credo Technology posted 115% revenue growth and raised guidance, yet shares fell 43% from highs due to customer concentration concerns.
Key points
- Credo Technology reported Q1 revenue of $479 million, a 115% year-over-year increase, while guiding Q2 revenue to $525-$535 million.
- The stock has fallen 43% from its 52-week high due to customer concentration risks, with the top two clients comprising 61% of revenue.
- Stifel Nicolaus maintains a $350 price target, implying nearly 100% upside, based on expected growth in optical DSPs and Active Electrical Cables.
Credo Technology Group (NASDAQ:CRDO) reported first-quarter fiscal 2027 revenue of $479 million, exceeding consensus estimates, while non-GAAP EPS reached $1.20 against an expected $1.17. Despite these fundamental improvements, the stock has declined approximately 43% from its 52-week high of $308.67, currently trading near $176.
Management guided second-quarter revenue to between $525 million and $535 million, signaling continued sequential growth. The disconnect between robust financial results and share price performance stems largely from investor apprehension regarding the company's heavy reliance on a small number of hyperscaler clients.
Customer Concentration Drives Recent Sell Off
The primary catalyst for the recent 25.1% monthly drop is the company's revenue mix, where the top customer accounts for 33% of sales and the second for 28%. This concentration leaves Credo exposed to order pauses by major hyperscalers, a risk that has overshadowed the broader AI connectivity sector's strength.
While peers like Astera Labs have gained 82% year-to-date, Credo has underperformed, trading at a significant discount to its $282.47 average analyst target. This gap implies roughly 61% potential upside, reflecting the market's cautious stance on the company's dependency on a few key accounts.
Optical Revenue Expansion Targets FY2027 Goals
Credo projects optical revenue to exceed $600 million in the current fiscal year, with specific product lines like ZeroFlap optics and silicon photonics each contributing over $100 million. Full-year revenue is expected to grow more than 85%, supported by a non-GAAP net margin approaching 50%.
Stifel Nicolaus analyst Tore Svanberg maintains a Street-high price target of $350, citing Credo's dominance in Active Electrical Cables and expanding design wins at Microsoft and Amazon. This valuation implies nearly 100% upside from current levels, contingent on the successful ramp of optical products in the second half of the year.
Analyst Revisions Signal Confidence in Growth
Among 19 covering analysts, 14 rate the stock a Buy and four a Strong Buy, with no Sell ratings. The consensus estimate for fiscal 2028 EPS has increased from $8.69 to $9.70 over the past quarter, driven by 14 upward revisions in the last 30 days compared to just one downward adjustment.
As reported by Yahoo Finance, the market is waiting for the optical inflection point to materialize in reported numbers. If the scheduled ramp of ZeroFlap and silicon photonics proceeds as planned, the recent estimate cuts for the October quarter should reverse, potentially closing the valuation gap with peers.
