CRDO Awaits Q2 Results: Growth Momentum vs. Premium Valuation Dilemma

Credo Technology Group Holding Ltd. (CRDO) is gearing up to release its second-quarter fiscal 2026 earnings on Monday, December 1, 2025, after market close. The company’s financial performance is drawing significant investor attention as the semiconductor sector watches closely.

What Analysts Expect from Q2

Market forecasts suggest CRDO will post earnings of 49 cents per share for the quarter, representing an impressive 600% year-over-year surge. Revenue expectations are pinned at $235.2 million, implying a staggering 226.6% increase compared to the prior year period. The company itself has guided for revenues between $230 million and $240 million, translating to roughly 5% sequential growth at the midpoint.

Notably, Credo has a solid track record of beating expectations. Over the trailing four quarters, the company surpassed analyst consensus for earnings in all periods, delivering an average surprise of 33.5%. However, this time around, current market sentiment suggests the stock may trade in line with or near consensus expectations.

For the upcoming quarter, management projects non-GAAP gross margins between 64% and 66%, with operating expenses expected in the $56-$58 million range—a lean profile reflecting operational efficiency as revenues scale.

AI Boom Fueling Revenue Expansion

Credo’s Q2 momentum has been driven by surging demand for its active electrical cables (AEC) and optical connectivity products, backed by accelerating hyperscaler infrastructure buildouts. The company’s technology platform handles data speeds up to 1.6 Tbps across multiple industry protocols, positioning it as a critical connectivity solution for next-generation data centers.

First-quarter fiscal results showcased this trajectory: Credo reported $223.1 million in revenues, up 31% sequentially and 274% year-over-year, beating its own guidance. Product revenue climbed 279% year-over-year to $217.1 million, driven by record-breaking sequential gains in AEC adoption among hyperscalers.

The optical segment is performing particularly well, with Credo on track to double optical revenues this fiscal year. Advanced digital signal processors (DSPs) are gaining traction across a widening customer base, while Ethernet retimers and PCIe retimer families are attracting strong interest. The company anticipates design wins in 2025 with revenue contribution expected in 2026, further expanding its addressable market.

Growing Competitive Pressures and Concentration Risks

Despite the tailwinds, CRDO faces headwinds that warrant investor caution. The semiconductor connectivity space has intensified, with heavyweight competitors like Broadcom (AVGO) and Marvell Technology (MRVL) vying for market share. Beyond competition, customer concentration poses a material risk: in the fiscal first quarter, the company’s top three customers each represented more than 10% of revenue. While Credo is working to diversify its customer base, it still expects three to four customers to remain above 10% of revenue in the current quarter as existing hyperscalers expand and new ones ramp production.

Macro uncertainty also looms. Potential tariff policy shifts and supply chain volatility could pressure margins and revenue growth. Manufacturing ramp challenges and unexpected shifts in hyperscaler AI spending could quickly derail momentum.

Valuation Tells a Story of Caution

CRDO shares have surged 258.9% over the past 12 months, dramatically outpacing the Electronics-Semiconductors industry (83%), the broader Computer and Technology sector (29.5%), and the S&P 500 (16.6%). The stock has also outperformed peers: Astera Labs (ALAB) gained 54.9%, Broadcom (AVGO) rose 149%, while Marvell Technology (MRVL) declined 2.6% over the same span.

Yet this stellar performance has come at a cost. CRDO currently trades at a forward P/E multiple of 96.6, substantially above the industry average of 39.22 and its own historical mean of 94.29. For context, Broadcom trades at 51.24x forward earnings, Astera Labs at 120.93x, and Marvell at 34.37x. The premium valuation leaves limited room for disappointment and reflects sky-high growth expectations already baked into the stock price.

Investment Perspective: Proceed with Caution

Credo has demonstrated impressive execution in capturing AI-driven infrastructure tailwinds, with cutting-edge SerDes and optical solutions gaining broader market acceptance. The company is positioned for continued expansion through fiscal 2026 and beyond, benefiting from the secular shift toward advanced connectivity in hyperscale data centers.

However, significant risks temper the bullish case. Heavy reliance on a handful of hyperscalers creates binary revenue exposure. Macro headwinds, tariff uncertainties, and the possibility of pullbacks in hyperscaler spending could quickly reverse fortunes. Intensifying competition from better-capitalized rivals and the premium valuation relative to peers suggest the stock may not offer compelling risk-reward at current levels.

For existing shareholders, a hold stance seems prudent until post-earnings clarity emerges. For prospective investors, waiting for a more attractive entry point or signs of customer diversification could be the wiser approach.