Credo Technology Stock Slides on Margin Concerns Despite Q1 Beat

Credo Technology (NASDAQ: CRDO) stock fell more than 10% in pre-market trading after the company's fiscal first-quarter results highlighted concerns over shrinking profitability, triggering a sell-off despite beating Wall Street's top- and bottom-line estimates.

Quarterly Results Exceed Estimates

In its report released Tuesday evening, Credo announced fiscal first-quarter 2027 results that surpassed analyst expectations. Key figures from the report include:

• Revenue: $479 million, ahead of the consensus estimate of $471.8 million. This represented a 10% sequential increase and a 115% year-over-year gain.
• Adjusted Earnings Per Share (EPS): $1.20, slightly above the forecast of $1.17.

Despite the headline beats, investors focused on the company's declining profitability metrics, which soured sentiment.

Margin Contraction Drives Sell-Off

Ad

The primary catalyst for the stock's decline was a contraction in the company's gross margin. According to the report, GAAP gross margin fell to 64.5% from 68.2% in the previous quarter. Furthermore, the company's guidance for the second quarter implied that this margin compression would continue.

The negative reaction was amplified by the stock's strong performance leading up to the report. Shares had gained approximately 43.6% year-to-date, creating high investor expectations and leaving the stock vulnerable to profit-taking on any sign of weakness.

Outlook and Market Context

Credo's management provided a robust long-term forecast, projecting full-year total revenue growth of more than 85%. The company also targets over $600 million in total optical revenue for fiscal 2027, with several key product lines expected to contribute significantly to this growth.

However, the market's immediate focus on near-term profitability trends overshadowed the strong growth outlook. The sell-off occurred in a largely flat market environment, which provided no broader support to cushion the stock-specific pressure. Analyst sentiment remains positive, with a consensus "Strong Buy" rating and an average 12-month price target of $283.23, according to Investing.com.