Is Credo Technology Group a Buy After Its Latest Earnings Report?

Artificial intelligence infrastructure stocks have been a popular way to invest in the massive build-out of AI. There is a huge demand for chips, data center capacity, power, cooling technology, and the equipment needed to help chips run AI workloads.

Credo Technology (NASDAQ: CRDO) has been a solid pick-and-shovels AI infrastructure stock over the last several quarters. The company makes digital signal processors, memory systems, and Active Electrical Cables (AECs), which are connectors that use signal processors to efficiently move data between chips and switches.

Credo issued its earnings report on June 1 for its fiscal fourth quarter (ending May 2, 2026), showing that it beat analysts' expectations on both the top and bottom lines. But the stock fell more than 12% in after-hours trading, apparently unable to meet the market's sky-high expectations. Let's look at what happened.

Image source: The Motley Fool.

Credo continues its winning ways in its earnings report

Credo's revenue in the fourth quarter was $437 million, up 157% from a year ago. Net income was $226.7 million, and earnings were $1.16 per share. Analysts at FactSet had expected revenue of $431.8 million and earnings of $1.02 per share. For the full year, Credo had $1.33 billion in revenue, up 205% from fiscal 2024.

CEO Bill Brennan called it the conclusion of "a defining year."

"As AI clusters scale from tens of thousands to hundreds of thousands of GPUs, connectivity is no longer just about bandwidth," he told analysts on the company's earnings call. "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."

The quarter marked the sixth consecutive quarter of year-over-year revenue increases in the triple digits, but the stock's immediate drop shows that not everyone was happy.

Does the market expect too much from Credo?

First, it's important to recognize that Credo had sky-high expectations coming into the earnings report. Credo Technology stock is up 57% so far this year, including a gain of 101% in the last three months.

Yes, Credo had another breakout quarter. But considering the massive run-up in AI infrastructure, it may not have been enough to satisfy the Street, particularly as the company's profit margin fell slightly on a sequential basis, from 68.6% to 68.3%, and it's projected to drop to about 68% in the second quarter.

Second, we've seen this pattern with Credo stock before. When the company reported its fiscal third-quarter earnings on March 2, revenue was up 201.5% to $407 million. The stock fell 14.8% the next day, but then rallied over the last three months.

CRDO data by YCharts

Will Credo bounce back again?

I believe it will. The company is projecting continued dynamic growth through its AEC business -- what Brennan describes as a "core growth engine" for the company. Credo is projecting a diversified sales stream, with its ZeroFlap Optics, silicon photonics, photonic integrated circuits (PICs), and optical digital signal processors each contributing more than $100 million in revenue in the next fiscal year. That would help Credo achieve total revenue growth of more than 80% for the year.

It is very difficult for Credo to wow the market with its revenue numbers. But I think investors are overreacting to this report, and today's dip is an excellent opportunity to buy Credo stock.

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