"Optical interconnect giant" Credo's Q3 revenue surged by 200%, but declining profit margins raised concerns; after-hours shares dropped over 12% before rebounding | Earnings report news

``` AI connectivity chip manufacturer Credo released third-quarter results and guidance for next quarter that both exceeded Wall Street expectations. However, the company's shrinking profit margin trend raised investor concerns, causing the stock price to fall over 12% after hours before narrowing its decline and turning positive during the earnings call. After the U.S. market closed on March 2, Credo announced its fiscal third quarter of 2026 (ending January 31, 2026) revenue, which soared 201% year-over-year to $407 million, and adjusted earnings per share of $1.07, both beating analyst expectations. At the same time, the company's guidance for next quarter's revenue has a midpoint of $430 million, slightly higher than the market's expected $428.5 million. According to WallstreetCN, when Credo previously released preliminary Q3 revenue expectations, it showed strong confidence in future growth. The company stated in a press release at that time: "Looking ahead to the end of fiscal 2026 and into fiscal 2027, Credo expects fourth-quarter revenue to achieve mid-single-digit quarter-on-quarter growth, which will drive over 200% year-on-year growth for fiscal 2026." However, the company's gross margin is clearly declining. The non-GAAP gross margin for the third quarter was 68.6%, but the midpoint for fourth-quarter guidance has dropped to 65%. This downward margin trajectory disappointed some investors. Credo's stock price once fell more than 12% after hours, but later reversed and strengthened from its low point. Performance: Five Consecutive Quarters of Triple-Digit Growth Credo's adjusted earnings per share for the third quarter were $1.07, above FactSet analyst expectations of $0.91. Additionally, revenue reached $407 million, up 201% year-over-year and over 50% quarter-over-quarter, also exceeding the top end of the company’s previous guidance range of $404–$408 million. This marks the fifth consecutive quarter that Credo has achieved triple-digit revenue growth, and analysts expect this high growth rate to last for at least one more quarter. CEO Bill Brennan stated that AEC (Active Electrical Cable) and IC (Integrated Circuit) businesses continue to grow, while the company announced that it has opened up new market opportunities worth several billion dollars through three new product lines: ZeroFlap optical devices, ALC (Active LED Cable), and OmniConnect. Brennan said: "We are very confident in our ability to innovate and grow within the rapidly expanding AI infrastructure landscape." Gross Margin Decline Becomes a Market Concern Despite strong revenue growth, margin compression remains the main concern for investors digesting the results. GAAP gross margin for the third quarter was 68.5%, and non-GAAP gross margin was 68.6%. But guidance for the fourth quarter shows the midpoint of GAAP gross margin will fall to 64.9%, and non-GAAP gross margin to about 65%, a nearly 4 percentage point decline quarter-over-quarter. The company expects adjusted operating expenses for the fourth quarter to be between $76 million and $80 million. Analysts believe that systematic margin compression during this phase of rapid revenue expansion usually suggests changes in product mix or customer bargaining power, which often prompts the market to reassess future earnings quality. Acquisition of CoMira to Accelerate AI Architecture Upgrades On the same day it released its quarterly report, Credo announced the acquisition of CoMira Solutions, further strengthening its technical positioning in AI systems. According to the company, CoMira specializes in link-layer, error correction, and security semiconductor technologies, which will help Credo develop more advanced system-level solutions for both scale-up and scale-out AI architectures. The transaction amount was not disclosed. Analysts believe that this acquisition, together with Credo's recent launches of new product lines, points to the same strategic logic: amidst accelerating AI infrastructure construction, continuously expanding accessible market scale to sustain high growth expectations. Risk Warning and Disclaimers The market has risks; investments should be made cautiously. This article does not constitute personal investment advice, nor does it consider individual users' specific investment goals, financial status, or needs. Users should consider whether any opinions, viewpoints, or conclusions in this article fit their specific circumstances. Investing accordingly is at your own risk. ```