Credo Doubles Down on Optics as NPO Opportunity Takes Shape

The Quarter in Numbers

Credo delivered a blowout quarter, with revenue reaching a record $479 million, up 10% sequentially and more than doubling year-over-year. Management flagged the seventh consecutive quarter of triple-digit growth, while non-GAAP gross margin held at 68% and net income exceeded $236 million. “Revenue reached a record $479 million, increasing 10% sequentially and more than doubling year over year.” — William J. Brennan, Chief Executive Officer · 2026-09-01

The company's fundamentals show total revenue more than quadrupling year-over-year, though the latest filed quarter (June) lags the call by one period. The topline is exploding, and the company guided Q2 to $525–535 million, implying continued acceleration. Cash remains substantial at $764 million even after the Dust Photonics acquisition, giving Credo ample dry powder for the ramp.

The Optical Pivot

What changed in this call is the depth of the optical opportunity. Credo now frames its portfolio around two major growth engines: AECs (the copper-based cables it popularized) and a rapidly expanding optical stack that includes DSPs, silicon-photonic PICs, and its proprietary Zero Flap Optics (ZF) transceivers. “Our optical business is progressing very well and includes optical DSPs, silicon photonics PICs, and zero flap optical transceivers.” — William J. Brennan, Chief Executive Officer · 2026-09-01 Management reiterated a $600 million+ optical revenue target for fiscal 2027, with each of ZF optics, silicon photonics, and optical DSPs contributing over $100 million.

The most strategic move is the company's decision to enter near-package optics (NPO) via the OpenCPX consortium, explicitly targeting scale-up networks that demand 10x density over conventional pluggables. As CEO Bill Brennan explained: “We will pursue component sales where that makes sense with customers, and we will also pursue system level solutions.” — William J. Brennan, Chief Executive Officer · 2026-09-01 This positions Credo to sell not just silicon but also packaged optical engines as NPO ramps in fiscal 2028.

What is different today is that we are adding optics as another major growth engine. From a much larger base and as an established player in the industry.

This pivot aligns with broad market themes: ZF Optics remains a company-unique innovation, while silicon photonics and optical transceivers are now central to AI infrastructure spending across the sector. Interestingly, the stock has fallen about 45% from its June high despite this strong report, suggesting investors may want clearer proof that optical margins and share gains are sustainable.

Inference and Memory Expansion

Beyond optics, Credo is pioneering a new solution for the memory-fanout bottleneck in inference workloads. Its OmniConnect family, including the Weaver gearbox, targets near-package memory expansion by allowing GPUs to attach to huge pools of LPDDR memory. “OmniConnect solutions can represent thousands of dollars of Credo content per GPU.” — William J. Brennan, Chief Executive Officer · 2026-09-01 While initial revenue appears in fiscal 2028, design traction is already underway with customers that are redefining AI inference.

This is a natural extension beyond the company's core AEC market, but it creates optionality across multiple connectivity bottlenecks. As we noted in prior quarters, management has long signaled a broadening portfolio. “We are going to see growth broadly across the 3 segments.” — William J. Brennan · 2026-06-01 The execution risk, however, remains supply chain and the ability to scale ZF optics aggressively. “We feel confident that we are going to achieve a very aggressive ramp in the second half of our fiscal year.” — William J. Brennan · 2026-06-01

Credo's gross margin has consistently exceeded its long-term model, but the company expects FY27 margins to hold near current levels. 68.2%. With a net margin near 50% and operating cash flow rising, the company is funding its own expansion. The biggest question is whether the stock's implied valuation — at ~38x forward revenue — already discounts a flawless execution of its multi-pronged optical strategy. The answer may hinge on how quickly NPO and OmniConnect move from design wins to meaningful revenue.