Credo (CRDO) Q4 2026 Earnings Transcript

Image source: The Motley Fool.

DATE

Monday, June 1, 2026 at 5 p.m. ET

CALL PARTICIPANTS

• Chief Executive Officer — William J. Brennan
• Chief Financial Officer — Daniel Fleming
• Head of Investor Relations — Daniel J. O'Neil

Need a quote from a Motley Fool analyst? Email pr@fool.com

TAKEAWAYS

• Revenue -- $1.3 billion for the fiscal year, up 206%, with Q4 revenue at $437 million, surpassing the total revenue for the previous fiscal year.
• Gross Margin -- 68.1% for the year, a 310 basis-point increase, with Q4 non-GAAP gross margin at 68.3%.
• Net Income (Non-GAAP) -- $662 million for the year, up more than 5x, and $226.7 million in Q4, a 9% sequential increase from Q3.
• Operating Margin (Non-GAAP) -- 49.6% in Q4, flat sequentially, reflecting strong operational leverage as operating income rose to $216.7 million.
• Earnings Per Share -- $3.46 for the full year, an increase of $2.76, or 392%.
• Free Cash Flow -- $177.5 million in Q4, up more than $37.8 million sequentially, contributing to cash and equivalents of $1.4 billion at quarter end.
• Inventory -- Ended Q4 with $250.8 billion, a sequential increase of $42.9 million.
• Customer Concentration -- Four customers accounted for at least 10% of Q4 revenue; largest was 34%, others were 27%, 16%, and 10%.
• Guidance — Next Quarter Revenue -- Q1 fiscal 2027 revenue guided to $465 million–$475 million, with non-GAAP gross margin expected at 67%–69%.
• Guidance — Optical Portfolio -- Optical DSPs, silicon photonics PICs, and ZeroFlap optics each expected to contribute more than $100 million in fiscal 2027; total optical revenue set to exceed $600 million, with acceleration in the second half.
• Guidance — Full-Year Growth -- More than 80% total revenue growth projected for fiscal 2027, with gross margin expected broadly consistent with prior year.
• Operating Expenses -- Q1 fiscal 2027 operating expenses forecast at $86 million–$90 million; full-year operating expenses expected to increase approximately 50%, below projected revenue growth.
• Dust Photonics Acquisition -- Closed last week; integration of silicon photonics platform expands product portfolio, with $750 million net cash outflow to occur in Q1.
• Supply Chain Management -- Management stated, "We feel confident that we are going to achieve a very aggressive ramp in the second half of our fiscal year," referencing optics supply chain commitments.
• Product Readiness -- Management confirmed readiness for production at both 100 gig and 200 gig per lane across copper and optical products. The industry-wide ramp to 200 gig per lane is expected to be light in fiscal 2027.
• Customer Diversification -- Neo cloud and Tier 2 cloud providers expected to represent a growing opportunity, collectively potentially reaching 20% of revenue in coming years.

SUMMARY

Credo Technology Group Holding Ltd (NASDAQ:CRDO) reported transformative top- and bottom-line growth, driven by AI infrastructure adoption and record contributions from its connectivity product lines. The integration of Dust Photonics expands Credo's addressable market, positioning the company for significant scale in next-generation optical interconnects. Management committed to maintaining strong gross margins and disciplined operating expense growth amid aggressive investment in R&D. Sequential revenue growth is projected to accelerate sharply in the second half of the fiscal year, fueled by a ramp in the optical product portfolio. The company maintains a robust balance sheet with no announced plans for equity raises or share repurchases.

• Optical revenue growth will be split across three segments—DSPs, PICs, and ZeroFlap optics—with each expected to grow over 80% and one outpacing the others due to higher ASPs in ZF optics.
• Approximately half of absolute dollar revenue growth in the next fiscal year is forecast to come from optical products, with the remainder from existing copper solutions, primarily active electrical cables.
• Tier 2 cloud and 'neocloud' operators are emerging as significant contributors, reflecting broadening customer adoption beyond the top six hyperscalers.
• Management noted, "There is a significant tightness in the supply chain," highlighting the importance of secured capacity commitments across critical product lines.
• Initial production ramps for new product categories—active LED-based cables and the Weaver (OmniConnect) solution—are expected in fiscal 2028.
• Fiscal 2027 will see limited revenue contribution from 200 gig per lane, but Credo is positioned for rapid market transition as ecosystem maturity develops.
• Current customer mix is expected to become less concentrated, with continued diversification as new large customers and Neo Clouds ramp deployments.

INDUSTRY GLOSSARY

• AEC (Active Electrical Cable): High-speed, low-power copper-based interconnect used for short-range server and data center connectivity.
• ZeroFlap Optics: Credo-branded optical modules featuring advanced telemetry and diagnostic software for real-time link health monitoring.
• SiPho PIC (Silicon Photonics Photonic Integrated Circuit): Optical device that integrates multiple photonics functions on a chip using silicon substrates for high-capacity data transmission.
• DSP (Digital Signal Processor): High-speed integrated circuit performing signal conditioning in optical modules to enable reliable data transfer.
• ALC (Active LED-based Cable): Cable solution using micro-LEDs instead of traditional lasers for optical data transmission, designed to combine optical reach with AEC-level reliability.
• Weaver (OmniConnect): Credo's first gearbox solution aimed at increasing memory I/O density and flexible interconnect architectures in inference designs.
• CPO/NPO (Co-Packaged Optics/Next-Generation Pluggable Optics): Architectures integrating optics more closely with switch or compute silicon, enabling higher bandwidth and power efficiencies.

Full Conference Call Transcript

Daniel J. O'Neil: Good afternoon. Thank you all for joining our fourth quarter fiscal 26 earnings call. Today, I am joined by Bill Brennan, Credo's Chief Executive Officer and Daniel Fleming, Credo's Chief Financial Officer. During this call, we will make certain forward looking statements. These forward looking statements are subject to risks and uncertainties discussed in detail in our documents filed with the SEC. These documents can be found in the Investor Relations portion of the company's website. It is now possible for the company's management to predict all risks, nor can the company assess the impact of all factors on its business.

Or the extent to which any factor or combination of factors may cause actual results to differ materially from those contained in any forward looking statement. Given these risks, uncertainties and assumptions, the forward looking events discussed during this call may not occur. And actual results could differ materially and adversely from those anticipated in or inferred. The company undertakes no obligation to publicly update forward looking statements for any reason after the date of this call. To conform these statements to changes in the company's expectations, to actual results. Except as required by law. Also, during this call, we will refer to certain non GAAP financial measures. Which we consider to be important measures of the company's performance.

These non GAAP financial measures are provided in addition to and not as a substitute for or superior to, financial performance prepared in accordance with U. S. GAAP. A discussion of why we use non GAAP financial measures and reconciliations between our GAAP and non GAAP financial measures is available in the earnings release we issued today which can be discussed using the Investor Relations portion of our website. I will now turn the call over to our CEO, Bill?

William J. Brennan: Thanks, Daniel, and thank you all for joining our fourth quarter and full fiscal year 26 earnings call. I will begin with a review of our fiscal 2026 performance, discuss the major developments across our business, and share our perspective on the opportunities ahead. Daniel Fleming, our chief financial officer, will then provide additional detail on our Q4 and fiscal year 26 results. Along with guidance for the first quarter of our fiscal 2027. We will then open the call for questions. Fiscal 26 marked another defining year for Credo. Revenue exceeded $1.3 billion, more than tripling year over year. While non GAAP net income increased more than 5x, to $662 million.

Very few semiconductor companies have scaled at this pace while sustaining product leadership strong margins, and operational execution. In the fourth quarter fiscal 26, revenue reached a record $437 million. Notably, our revenue in the quarter exceeded our entire fiscal 25 revenue. Q4 non GAAP gross margin was 68.3%. non-GAAP net income grew to $227 million. And was more than 30% greater than our revenue in the year ago quarter. Producing these results required incredible effort and expertise and I want to sincerely thank team Credo for their continued stellar performance. These results reflect Credo's ability to capitalize on a fundamental shift occurring across AI infrastructure.

As AI clusters scale from tens of thousands to hundreds of thousands of GPUs, connectivity is no longer just about bandwidth. Reliability, power efficiency, signal integrity, and telemetry have become critical architectural requirements. Today's AI infrastructure is increasingly constrained not by compute, but by the reliability and efficiency of the connectivity fabric tying these systems together. Over the past several years, AI network reliability has become Credo's north star. Our road map, our product investments, our software architecture, and our system level approach have all been built around helping customers accelerate cluster bring up maximize GPU utilization, and maintain stable operation at unprecedented scale. Credo was purpose built for this transition.

Our strategy is centered on delivering connectivity solutions across the full spectrum of AI infrastructure from die to die and chip to chip connectivity to multirack scale copper and to row scale and facility wide optical interconnect. By extending both inward toward the silicon and outward across the data center, we have positioned Credo to become a foundational network architecture partner for our customers. Importantly, Hyperscale and Neo Cloud operators increasingly want partners capable of delivering multiple generations of connectivity solutions with deep system level integration This is where Credo differentiates itself through our vertically integrated approach spanning core series technology, silicon and system level solutions, firmware and telemetry software, and operational execution.

I will now discuss our businesses in more detail. First, regarding active electrical cables, our AEC business remains a core growth engine for the company. And we continue to see substantial long term opportunity ahead. As AI clusters scale, reliability and power efficiency have become primary design constraints. AECs have become the preferred solution for in rack connectivity and for many multi rack deployments up to 7 meters. Credo's ZeroFlap ADCs deliver up to 1 thousandx greater reliability than commodity laser based optical modules while consuming much less power. In environments where cluster downtime can cost millions of dollars delay AI deployment schedules, network reliability, matters more than ever.

We continue to see strong customer adoption across hyperscaler and Neo Cloud operators both at 100 gig per lane and emerging 200 gig per lane deployments. Our vertically integrated model positions us well for continued leadership as both lane speeds and cluster complexity increase. We also remain on track with our PCIe Gen 6 ADC family. Where customer engagement and design activity continue to strengthen. Now turning to optics. We believe fiscal 27 represents an inflection point for Credo's optical business. First, at an optical DSP component level, we see momentum in both design wins and revenue contribution.

We are looking forward to continued growth in this product family and we have received excellent customer feedback on the solutions we announced last quarter. Both Robin a highly optimized DSP at 100 gig per lane, and Cardinal, a leading edge DSP at 200 gig per lane. Next, the acquisition of Dust Photonics, which closed last week, significantly expands our optics position with highly differentiated silicon photonics PIC technology. Dust brings strong design win momentum and a portfolio spanning 800 gig and 1.6 t solutions along with a road map to 3.2 Tbps and beyond. Importantly, their architecture enables simplified optical designs with substantially fewer lasers.

In addition to enabling better reliability, power efficiency, and cost, laser count reduction can ease the industry supply chain limitations. The DUST silicon photonics road map also provides a direct path to CPO and NPO architectures, Allowing us to address a broad range of customer requirements as AI deployments evolve in the scale of network domain. Based on current customer engagements, initial revenue for CPO and NPO designs is expected in our fiscal 28. Finally, our ZeroFlap optics platform continues to gain strong traction as customers increasingly prioritize network reliability. With the addition of SiPho PIC technology, to our ZeroFlap optics platform, we can now control a significantly larger portion of the optical stat.

Extending visibility deeper into optical link behavior and performance. The tighter DSP to pick integration enables richer telemetry, enhanced diagnostics, and more intelligent system level optimization. By combining optimized hardware and our PILOT software with switch level SDK integration, ZeroFlap optics continuously monitor link health, and autonomously detect and mitigate link instability conditions before impacting the cluster. Results have shown a meaningful improvement in network reliability, time to cluster stability, and long term uptime. In summary, we are very enthusiastic about the prospects of our optical portfolio. In fiscal 27, we expect our optical DSPs, SiPho PICs, and ZeroFlap optics will each contribute more than $100 million of revenue. And in total, more than $600 million of revenue.

With this expected ramp accelerating in the second half of the year Based on customer and market feedback, we believe this portfolio will deliver sustained rapid growth in future years. Now regarding retimers. Our retimer business also continues to gain momentum. We are seeing strong growth for retimers at 100 gig and 200 gigabits per second per lane as well as increasing traction for our PCIe Gen 6 retimers. Our 200 gig per lane retimer was purpose built for scale out and emerging scale up networks. We are seeing increased interest and demand as the device combines support for the broad range of 200 gig per lane protocols. Including Ethernet, UALink, and ESUN.

As AI infrastructure becomes increasingly complex, and protocol diversity expands, we believe our system level expertise and software integration capabilities position us well for continued share gains. Now moving to our emerging growth categories. We also continue to make strong progress across our newer growth vectors, including active LED-based cables, and the OmniConnect. Our ALC solutions will extend the reliability and power profile of AECs into raw scale optical connectivity by replacing traditional lasers with micro LED technology. This creates a highly differentiated connectivity category capable of delivering AEC class reliability with optical reach of up to 30 meters.

Our OmniConnect family expands our solutions inward towards the silicon Our first gearbox solution, Weaver, will address growing memory bandwidth and density challenges by enabling substantially higher memory IO density and more flexible architectures. Customer engagement remains strong, especially around next generation inference designs. We continue to expect production ramps for both ALC and OmniConnect solutions beginning in our fiscal 28. And in conclusion, the data center connectivity market continues to evolve As AI scales toward gigawatt class deployments, and increasingly dense architectures, network reliability becomes even more critical. Even isolated link instabilities can impact cluster bring up times, GPU utilization, and overall system availability. that is why reliability, Credo's north star over the past several years.

It drives our system level philosophy our telemetry first software architecture, and the investments across the full spectrum of our solutions. Fiscal 26 was another transformative year for Credo. And yet we believe we are still in the early innings of the opportunity ahead. With that, I will turn the call over to Daniel Fleming for a detailed financial review, and our outlook for Q1 fiscal 27.

Daniel Fleming: Thank you, Bill, and good afternoon. I will first provide a financial summary of our fiscal year 2026 then review our Q4 results and finally, discuss our outlook for Q1 and provide some color on our expectations for fiscal year 2027. Revenue for fiscal year 2026 was another record at $1.3 billion, up 206% year over year. Gross margin for the year was 68.1%. Up 310 basis points year over year. Our operating margin improved by 2.1 thousand basis points as we continued to generate considerable top line leverage driven by growth in our products, while growing operating expenses considerably slower than revenue.

That step up in profitability flowed through to the bottom line, as we reported earnings per share of $3.46 for the year. A $2.76 improvement. Or up 392% over the prior year. In fiscal year 26, Credo not only delivered the dramatic growth which we had forecast, but we also demonstrated the considerable earnings power in our business model. Moving on to the fourth quarter. In Q4, we reported revenue of $437 million up 7% sequentially and above the high end of our guidance range. Year over year, revenue grew 157%, and notably, Q4 alone exceeded our total fiscal year 25 revenue. Q4 marks another revenue record driven by substantial year over year growth across 4 domestic customers.

Our top 4 end customers each came in At or greater than 10% of revenue in Q4. As a reminder, customer mix will vary from quarter to quarter. We continue to expect that 3 to 4 customers will be greater than 10% of revenue in the coming quarters and fiscal year. And we continue to make progress in diversifying our revenue base across hyperscalers, neo clouds, and other customers. Our team delivered Q4 non GAAP gross margin of 68.3%, above the high end of our guidance range. Total non GAAP operating expenses in the fourth quarter were $81.7 million above the high end of our guidance range due to our strong R&D investment and up 6% sequentially.

Our non GAAP operating income was $216.7 million in Q4. Compared to non GAAP operating income of $201.8 million in Q3, Our non GAAP operating margin was 49.6% in the quarter. Flat sequentially. Our bottom line once again demonstrated the substantial leverage we are delivering in the business. Our non GAAP net income $226.7 million in the quarter, a record high and a 9% sequential increase compared to non GAAP net income of $208.8 million in Q3. Our Q4 non GAAP net income more than tripled year over year and was 33% higher than our revenue in the fourth quarter of last year.

Which most clearly demonstrates the magnitude of our top line growth strong gross margins, and disciplined approach to managing operating expenses. Our non GAAP net margin was 51.9% in the quarter. Cash flow from operations in the fourth quarter was a record $182.2 million up $16 million sequentially. CapEx was $4.8 million in the quarter. And free cash flow was $177.5 million up more than $37.8 million from the third quarter. We ended the quarter with cash and equivalents of $1.4 billion an increase of $141.8 million from the third quarter. Driven by our strong free cash flow. We remain well capitalized to continue investing in our growth opportunities while maintaining a substantial cash buffer.

Our Q4 ending inventory was $250.8 billion up $42.9 million sequentially. Now turning to our guidance. We currently expect revenue in Q1 of fiscal 2027, to be between $465 million and $475 million. We expect Q1 non GAAP gross margin to be within a range of 67% to 69%. We expect Q1 non GAAP operating expenses to be between $86 million and $90 million And we expect Q1 diluted weighted average share count to be approximately 199 million shares. These expectations are based on the current tariff regime, which remains fluid. We were pleased to see fiscal year 26 play out better than we had expected.

The rapid shift to AI workloads continue to drive new and broad based customer engagement, and we executed well to grow at more than twice the rate we expected at the beginning of the year. As we begin fiscal year 27, we expect mid single digit sequential growth in the first half with an inflection beginning in the second half. That inflection is bolstered by more than $600 million in optical revenue. With ZeroFlap optics, silicon photonics, PICCs, and optical DSPs each contributing more than $100 million. Driving more than 80% year over year total revenue growth for the full year. We expect non GAAP gross margin for fiscal year 2027 to be broadly consistent with fiscal year 2026 levels.

We expect non GAAP operating expenses to increase approximately 50% year over year, well below our revenue growth rate as we continue to invest in R&D to support the new product development and address the significant growth opportunities ahead. As a result, we expect our non GAAP net margin to be in the vicinity of 50%. And with that, I will open it up for questions.

Operator: At this time, would like to remind everyone, in order to ask a question, press star then the number 1 on your telephone keypad. As a reminder, we ask that you please limit yourself to 1 question only so we can get to as many people as possible. We will pause for just a moment to compile the Q&A roster. Your first comes from the line of Tom O'Malley with Barclays. Your line is now open. Please go ahead.

Analyst (Tom O'Malley): Hey, guys. Thanks for taking the question. Appreciate it. I just wanted to dive in into the guidance. Is there any optical revenue, ZF Optics, or Dust Photonics in that guidance? And if so, how much? And then you mentioned $100 million across the different a couple different vectors in the optics business for this year. 1 of them was over $100 million in DSP. Have you seen a change in the attitude of the market with procuring discrete DSPs? I assume you mean discrete DSP sales versus data module. And just that change over the last couple of months if you see that accelerating and just clarify if those are being sold to customers directly or inside of modules.

Thank you. Yeah, Tom. For the full year outlook that we provided, which is revenue growing at 80% plus year over year.

Daniel Fleming: A component of that is our entire optical portfolio, which we described 3 different legs of, which we expect to each be over $100 million. So as you say, it is, the discrete optical DSPs over $100 million in the year, and ZF optics over $100 million in the year. And, the silicon photonics PICs over $100 million per year. So, it is in the overall, yearly guidance. And if you kind of break that down or dive into that a little bit deeper, what you will see is, based on that guidance, if you look at absolute dollars year over year, expectation for fiscal 27, About half of that growth in absolute dollars is coming from our optical portfolio.

And about half of that is coming from our existing copper portfolio, predominantly AECs, but also retimers.

William J. Brennan: Just to be clear, Tom, the 3 categories that Daniel just described in total we are expecting more than $600 million of revenue contribution So each 1 will contribute more than $100 million, but in total, it will be more than $600 million.

Operator: Your next question comes from the line of Tore Svanberg with Stifel. Your line is now open. Please go ahead.

Analyst (Tore Svanberg): Yeah. Congratulations on another record. Maybe to follow-up on the optical revenue for fiscal 2027. So, Bill, I mean, I get it. Right? I mean, $100 million-plus but you are guiding to $600 million total plus. So which 1 within the 3 segments, skews higher? Because, obviously, 1 of them is going to have to be significantly more than 100 million.

William J. Brennan: I think the important message there is that we are going to see growth broadly across the 3 segments. You are right that there will be 1 that has the largest revenue. But I think that we can clearly state that all 3 categories are growing very quickly. In fact, more than the growth that Daniel guided for the whole year. Right? So each 1 of these categories independently is going to grow more than 80% year over year.

Operator: Your next question comes from the line of Joseph Cardoso with JPMorgan. Your line is now open. Please go ahead.

Analyst (Joseph Cardoso): Hey. Thanks for the questions. Maybe another 1 on the guidance. But thinking about it from a first half versus second half dynamic, like how should we think about the larger--largest contribution of growth from a portfolio perspective on a half over half basis, including AECs, the optical solutions, etcetera? As we progress into the second half? Then as a second part of that question, like, how should we be thinking about the implications to margins as these inflect into the back half? Thank you.

Daniel Fleming: So similar to, how I described the absolute dollar contribution of growth, in the first half of the year, we guided mid single digits, between our Q1 guide, and you can expect something similar in our Q2 guide when that comes. that is largely driven by, increases in our current portfolio that has ramped substantially, which is AEC predominant. But in the second half, as we described, a lot of that inflection is being driven by our optical portfolio, which is again, just to reiterate, the ZeroFlap optics ramp plus silicon photonics ramp plus our existing optical DSP portfolio, gaining significant traction this year versus fiscal 26.

Operator: A reminder, if you would like to rejoin the queue, to ask a follow-up question, please press 1 on your telephone keypad. Your next question comes from the line of Sean O'Loughlin with TD Cowen. Your line is now open. Please go ahead.

Analyst (Sean O'Loughlin): Hey, guys. Congrats on the results and the guidance. Thanks for letting me on to ask a question. I wanted to ask about the supply side of things. I think it is required that at 1 of us ask about supply on every earnings call now. Back at OFC, we had talked about some of the work you were doing to secure some of the supply for the ZF Optics ramp. Maybe if you could just talk about any updates there? And then there is anything notable as well on the AEC side, would be great to hear about this question.--Situation.

William J. Brennan: Generally speaking, I think that supply chain discussions are going to become or stay popular. Throughout the next year or even longer. There is a significant tightness in the supply chain. that is why it is important to understand the you know, just the capability and the depth that we have got both on the silicon operations team as well as our systems operations team and that includes AEC's NZF optics. So starting with ZF optics, owning the entire bill of materials. Basically, and being responsible for sourcing that and being able to lean in and basically get capacity commitments based on us leaning forward, leaning in to making an investment in each area.

We feel confident that we are going to achieve a very aggressive ramp in the second half of our fiscal year. And even more than double or triple that the following year. So we feel very good about the commitments that we have got in place across the board from the supply chain that contributes to the optics. And, of course, that is beyond the silicon that we are building. Now from a silicon side, we have a very diverse set of products from a perspective of process geometry. Right now, 12nm is a workhorse. A lot of the AECs that we are shipping are using 12nm for all the 100 gig per lane.

We also are transitioning for optical DSPs into 7nm for a 100 gig per lane. And we have got, a program in flight in 5nm that will be significant volume. And then for all of our 200 gig per lane products across the portfolio, we are using 3nm. And I can say that is probably pretty consistent throughout the industry that if we talk about the 1.6 t, market, that I do not think we are going to see anybody in 5nm We will see the bulk of the production happen in 3 and possibly a shift to 2 over time. To respond to the need for lower power.

For us, we are going to deliver very low power in 3nm as you would expect. Now there is been a lot of discussion about 3nm. Overall capacity and supply chain issues. Got an extremely close relationship with our supply chain partners, and I think there is a strong understanding that clusters do not get built. Without the small complementary connectivity chips that we build. And that we embed into our system level products as well. So I feel quite good.

I mentioned on the last call that I feel good about our position, and it is really based on the fact that this is something that over the last 5 years, we have invested heavily And just in resources, but also dollars. In making sure our supply chain partners understand our commitment.

Operator: Your next question comes from the line of Quinn Bolton with Needham. Your line is now open. Please go ahead.

Analyst (Quinn Bolton): Hey, guys. Thanks for taking my question. I just wanted to ask maybe cut the revenue a different way. Do you guys expect any meaningful revenue in fiscal 27 from scale up? Or do you expect the vast, vast majority still to be scale out And if scale up is beyond 2027, when would you think scale up becomes potentially meaningful contributor to revenue?

William J. Brennan: I would say fiscal 27, there is scale up revenue. But it is going to represent the beginning of the round. I think we see fiscal 28 as being more substantial But it really boils down to the different architectures that are being considered It boils down to each customer and their own individual strategy. Around how do they solve that bandwidth opportunity or that bandwidth challenge for scale up. And so we very much view that all of the hyperscalers and neo clouds for that really represent their own individual markets. And so we are very, very focused customer by customer. And our portfolio is gonna be deployed differently for each 1.

Operator: Your next question comes from the line of Karl Ackerman with BNP Paribas. Your line is now open. Please go ahead.

Analyst (Karl Ackerman): Great. Thank you. Hey, Bill. I was hoping you could thinking about the demand opportunity for CPU based AI servers for inferencing tasks. Should we assume a similar NIC-to-TOR attach rate for custom ASICs and agentic CPU servers relative to the GPU based servers you addressed today? Thank you.

William J. Brennan: I think from an expectation standpoint, when we talk about training and we have talked about inference and now we are talking about agentic, all of them are deployed in different ways. And all of them represent a great connectivity opportunity for us. I think from the standpoint of agentic, I think it is really a great opportunity from the standpoint of more front end connections. And depending on architectures, it could go beyond that as well.

Operator: Your next question comes from the line of Sebastien Cyrus Naji with William Blair. Your line is now open. Please go ahead.

Analyst (Sebastien Cyrus Naji): Good afternoon. Thanks for taking the question. You guys have announced a number of partnerships with smaller Neoclouds. It seems like Credo is diversifying even beyond your core 5 hyper customers. So could you maybe help frame for investors how big an opportunity these Tier 2 cloud customers could be for Credo? Could they represent 10 or even 20% of total revenue over the next few years, or is that too aggressive just given how strong hyperscaler demand is? Any color there would be great.

William J. Brennan: Absolutely. This is 1 of the biggest trends that we are encouraged by. This emergence of the Neocloud ecosystem. So, historically, as you mentioned, a lot of the AI infrastructure investments was concentrated within 5 and now 6 hyperscalers. We are seeing a great growth in the number of Neocloud providers that are building AI infrastructure platforms. To support a broad range of applications from model developers to enterprises to sovereign AI, and inference workloads, even agentic. These operators are maybe the perfect customer for Credo in a sense that they need--they move. They move very quickly. They are deploying very optimized architectures, and they put a huge emphasis on network performance reliability, and also time to deployment.

All of these things make them financially more successful if we could do a good job with it. So we think that the Neoclouds are gonna represent growing and more meaningful opportunity for Credo over the coming years. And I do think you are right that we can we can if we looked at that group of customers collectively, I definitely think it could be on the order of 20%.

Operator: Next question comes from the line of Sujeeva De Silva with Roth Capital. Your line is now open. Please go ahead.

Analyst (Sujeeva De Silva): Hi, Bill. Hi, Daniel. Congrats on the strong results here. Trying to get some understanding of the relative growth maybe of the copper based products versus optical. Copper is still a large part of the mix. But optical is coming on strong here. The next few years, just wanted to ask maybe, would you expect possibly optical with all the tailwinds can cross over into the kind of half of the revenues and half? Or is that not the right expectation for multiyear growth path?

William J. Brennan: I think that eventually, we could see optical and copper products in our portfolio. Eventually, we could get to 50 for sure. I think if you look at the market size in general, we are doing extremely well in AECs, and there is as I mentioned, earlier, I think there is long term growth case to be made. I feel very strongly about where the market's going and our position in the market and the products that we are bringing forward. Especially as the market transitions from 800 gig to 1.6 t. So it is gonna be a lot of great dynamics within the AEC market. But look.

If we look at the overall market size, for opticals, just with pluggables alone, and can have that pluggable versus CPO or NPO long term discussion. But if we look at the long term market for pluggables, it is significantly larger than, the AEC pluggable market. Yes, I think we can make a case where we will achieve 50, and I could make a case based on market size and penetration with the market that optical could actually seed copper in the upcoming years.

Operator: Your next question comes from the line of Blayne Curtis with Jefferies. Your line is now open. Please go ahead.

Analyst: Hey. Good afternoon, guys. Thanks for taking my question. Wanted to ask about the 4 10% customers. I do not know if you are willing to give the numbers, but maybe just speak to some of the lumpiness that you have seen in the past and whether you know, that will impact the first half of this year? And then if you can also address just you know, those customers moving to the next product and kind of the gross trajectory, you said 3 or 4 would contribute. Just relative confidence on that would be great.

Daniel Fleming: Yeah. So as we mentioned in our prepared remarks, we had 4 10% customers in Q4. They ranged from a high of 34% down to 10%, The 3 largest customers in Q4 were the same customers that were the largest in Q3 as well. So it is 34% for the largest, 27% for the second largest, 16 for the third, And notably, the fourth customer which was at 10%, they were not previously a 10% customer during fiscal 26. As you mentioned, Blaine, there is some quarter over quarter variability with any given customers. This quarter, I would say it was not huge. Variability that was driven, but there could be some of that going forward.

We have seen that certainly in the past. But 1 of the key takeaways is we expect increasing diversification in fiscal 27. And it is really based on our current customer engagements And we continue to diversify, with multiple large hyper scale customers. And as Bill just described, with Neo Clouds, we expect them to become an important and a sizable contributor in revenue, in the upcoming quarters and years.

Operator: Your next question comes from the line of Vijay Rakesh with Mizuho. Line is now open. Please go ahead.

Analyst (Vijay Rakesh): Yeah. Hi, guys. Good to see a strong continued ramp here in Beach. Just a question back on the 1.6. Obviously, that should drive it good content increase. ASP increase for you with the 200 gig per lane. When you see that ramping, is that more like into next year? Can I get some color on that? And on the ZF optic side, do you see that also gaining traction on the 1.6 p 7? If you can give us some color on how many customers in ZF Optics now. Thanks.

William J. Brennan: So first, on the transition from 800 gig to 1.16. Of course, the timing is gonna shift a lot about the deployment of Rubin and really each of the customers individual strategy. Some will be very delayed. Some will be first to deploy. But I think the exact timing of the transition will move somewhat as the platforms evolve. But the underlying bandwidth requirements, I do not think change. Important to recognize that customers are designing for flexibility In many cases, system architectures that support 1 point t bandwidth, when they come to market, typically, we will see customers building flexibility on the rest of the ecosystem of connectivity.

So we see a lot of our customers designing 2 physical ports for each GPU. And in the case of 1.6 t, 1 option would be to deploy in each port 4 lanes of 200 gig signaling. Another risk averse way of going to market would be to deploy 2 ports with 8 lanes of 100 gig And so for us, it you know, that allows customers to manage deployment timing while preserving future upgrade paths. Not everything has to come at once. there is a huge trade off on overall supply chain as well as, maturity as it relates to different connectivity products. For our perspective, we participate both.

We have strong positions in 100 gig per lane of balloons today, and we can continue. Supplying that in very high volume. We also invested heavily in 200 gig per lane, so we are ready to go. From the standpoint of AECs and ZF optics. Now as it relates to optical DSPs, yes, we have got several customer engagements. And from a CyphoPick perspective, same thing. But we do not ultimately control the outcome of when those transceivers go to market. And so it is hard to talk about the precise timing of the transition, but we are bullish on the long term opportunity, whether 800 gig or 1.6T.

The dynamics as we go to 1.6 t, as we have talked about, is we will as the rest of the industry will, experience an uplift in ASPs. So, hopefully, that answers your question. If I could just summarize at a high level, I think our fiscal 2027 will have relatively light revenue as it relates to 200 gig per lane. And that is just a function of the fact that the industry has not seemed to get there quite yet. And there is always a rumor about delays. If we are gonna make a shift and the industry is ready, we are ready right now.

We are absolutely confirmed from the standpoint of being ready for production on all of our copper as well as optical system level products as well as component level products.

Operator: Your next question comes from the line of Janko Venter with Arete Research. Your line is now open. Please go ahead.

Analyst: Hi, James. Thanks for taking my question. Look. You are very well capitalized right now as you presented in the prepared remarks. You have undergone strategic investments with Dust Photonics. You have added SiPho to the portfolio. it is being integrated into your ZF Optics portfolio as well as being a standalone opportunity. You are putting it to work in the coming fiscal year. So can you perhaps help us understand how you are thinking about putting the capital on the balance sheet to work and how you will be approaching further strategic investments?

Daniel Fleming: Yes. Let me first state that we have no current plans to raise any capital, additional capital at this point. Nor do we plan to do a share buyback. It goes without saying. And, you know, 1 of our goals that we laid out in the past, particularly when we did an ATM a couple quarters ago, is that we wanna maximize our strategic flexibility for things, such as now we have done 3 acquisitions. And just to note, you know, that the Dust, Photonics acquisition closed last week, as I am sure you saw, the net cash amount that you will see in Q1 that went out the door in Q1 was about $750 million.

And, of course, we ended Q4 with $1.4 billion in cash. But that is against the backdrop of being in a very, strong cash flow position. Where cash flow from operations is approaching $200 million per quarter now. So as we exit Q1, we are very comfortable in our cash position. And we expect, you know, there will be times where there will be opportunistic, acquisitions that we may entertain from this, point forward, but nothing immediately that we are looking at.

Operator: A reminder, if you would like to ask a question, please press star then the number 1 on your telephone keypad. Our next question comes from the line of Tore Svanberg with Stifel. Your line is now open. Please go ahead.

Analyst (Tore Svanberg): Yes. Thank you. Just a follow-up, Bill. So you think about the 3 optical businesses in fiscal 2027, I mean, 2 of them, you know, the PIC and the DSP, they have been sort of mean, they have been ramping, but, you know, ramping over time. Whereas ZF Optics, obviously, is more of a hockey stick ramp. At least that is the way I would position it. When you think about Weaver, and ALC starting to ramp in fiscal 28, how should we think about those ramps in relation to the other 3? Just so we sort of get a feel for the trajectory of both those new products categories in fiscal 28?

William J. Brennan: Sure. I will say that to give a little more color on your first question earlier, the ASPs on the discrete components optical DSPs and SiPho PICs. Those ASPs are typically 2 digit ASPs. On the, on the ZF optics, we are gonna see 3 digit ASPs. And so I did not mean to be a bit elusive or not answer your question. But I think the math clearly says that as we ramp ZF that is going to be clearly our largest revenue contributor for our optical portfolio.

Just the potential there is great, and what we are delivering is a solution to network reliability, which is something that is absolutely higher and higher priority with the customers that we work with. Now as it no. Of course, I forgot the rest of the question. Show me a Yeah. Omni and ALC and should we think about those Oh, yes. Yes. Yeah. I got too focused on the near term. Sorry about that. Let me put things in perspective for ALC. So that is a system level pluggable product just like an AEC or just like a ZF optic. It brings the same AEC dynamics of power efficiency, cost efficiency. it is got a better form factor.

Than AEC's, and it is got a much longer length. So for certain customers, that is gonna be a really natural product to get from a design in and beginning of production. So the dynamic there can be very much similar to AEC's NZF optics in the sense that we can see large revenue quickly. Now as it relates to Weaver, our--just let's use our first customer, Pozitron, as an example. They are redefining memory attachment and bandwidth. For inference. So they have announced their first product with a total memory LPDDR size of 2 TB. So that is more than 10x any other inference engine that is been announced in the market.

So game changing from the standpoint of performance. Now if 2 TB are deployed that requires many, many Weaver chips. And what I have said in the past is that the revenue contribution per GPU can be between $2,000 and $3 thousand. And so you can see that product category will ramp very quickly as well. As we have got customers that go into volume with their with their inference GPUs that utilize that solution.

Analyst: Just the color I needed. Thank you.

Operator: Your next question comes from the line of Jim Schneider with Goldman Sachs. Your line is now open. Please go ahead.

Analyst (James Schneider): Good evening. Thanks for taking my question. Given the accelerating growth you expect sequentially in the back half of this year, presumably driven by the optical portfolio. Can you talk about any changes you are expecting to see in terms of how your customers deploy AECs in their environments? Or is that growth just gonna remain very strong off of a large installed base? Thank you.

William J. Brennan: From the standpoint of say, AEC customer diversity or growth, we are definitely seeing that AEC adoption is broadening across the industry. And we are we very much feel like we are in the early innings or stages of penetration. We are seeing a broad breadth of adoption We have mentioned Neoclouds as a new customer category really a perfect solution for those players that have architectures that will enable in rack and multi rack deployments there is a trend towards more density. So there is definitely a trend towards more Neoclouds being able to use AECs.

But I think that as we talk about that category growing, I think we can definitely say Neoclouds will be growing for the foreseeable future. If we look at the hyperscalers, of course, we have mentioned we are deployed and we are high volume with 5 of 6 now. And I think that with all of them, we have still got the ability to penetrate further in into their networks. I do not think we can point to 1 where we are fully deployed other than ex-AI. And so we see great growth opportunity for both hyperscalers and neo clouds. And I think it is really gonna be a long term growth that we expect.

I do not think it is gonna be as fast growth from a percentage standpoint as what we are gonna see in optical. it is gonna be a continued growth driver for the company.

Operator: There are no further questions at this time. Mister Brennan, I turn the call back over to you.

William J. Brennan: Thanks so much for the questions. I really appreciate the ongoing interest and support, and look forward to the next time we talk.

Operator: This concludes today's conference call. You may now disconnect.

This article is a transcript of this conference call produced for The Motley Fool. While we strive for our Foolish Best, there may be errors, omissions, or inaccuracies in this transcript. Parts of this article were created using Large Language Models (LLMs) based on The Motley Fool's insights and investing approach. It has been reviewed by our AI quality control systems. Since LLMs cannot (currently) own stocks, it has no positions in any of the stocks mentioned. As with all our articles, The Motley Fool does not assume any responsibility for your use of this content, and we strongly encourage you to do your own research, including listening to the call yourself and reading the company's SEC filings. Please see our Terms and Conditions for additional details, including our Obligatory Capitalized Disclaimers of Liability.

The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.