Core Viewpoint - Zacks Investment Research has initiated coverage of Optical Cable Corporation (OCC) with an "Outperform" recommendation, indicating potential for the company to outperform the broader market as demand trends improve and operating leverage emerges [1] Company Overview - Optical Cable designs and manufactures fiber-optic and copper cabling and connectivity solutions for enterprise networks, data centers, and specialized environments, serving customers in approximately 50 countries [2] Demand and Revenue Growth - The investment case is centered on improving demand visibility and accelerating revenue growth, highlighted by a significant increase in order backlog, which reached approximately $10.4 million at the end of January 31, 2026, compared to $7.3 million in the prior quarter and $6.6 million in the year-ago period [3] - International sales increased roughly 18% year over year in the most recent quarter, significantly outpacing domestic trends, indicating growing traction for the company's products in global infrastructure markets [6] Strategic Partnerships - A collaboration with Lightera, established in July 2025, allows Optical Cable to combine product portfolios, broadening the range of fiber and connectivity solutions for enterprise and data infrastructure projects [4] Market Exposure - The company benefits from exposure to multiple infrastructure-related end markets, including enterprise networking, industrial environments, renewable energy projects, broadcast infrastructure, and military applications, providing resilience due to varying demand cycles across these industries [5] Valuation Perspective - The stock is currently trading at about 0.97 times trailing 12-month enterprise value to sales, in line with the Zacks Fiber Optics subindustry but below the broader technology sector and S&P 500, which trade at significantly higher multiples [9] - Shares are trading at approximately 4.3 times book value, again below sector averages [9]

Financial Data and Key Metrics Changes - The company reported record revenue of $268 million for Q2 2026, representing a 20% sequential growth and a 272% increase year over year [5][17]. - Non-GAAP gross margin was 67.7%, with non-GAAP net income reaching approximately $128 million, marking the strongest quarterly results in the company's history [5][19]. - Non-GAAP operating income was $124.1 million, reflecting a significant increase due to over 20% sequential top-line growth [19]. - Cash flow from operations was $61.7 million, with ending cash and equivalents of $813.6 million, an increase of $333.9 million from Q1 [20]. Business Line Data and Key Metrics Changes - The Active Electrical Cables (AEC) product line continued to be the fastest-growing segment, with revenue driven by increasing customer diversity, including four hyperscalers contributing over 10% of total revenue [6][17]. - The Integrated Circuit (IC) business, including retimers and optical DSPs, also showed strong performance, with significant growth expected in fiscal 2026 [9]. Market Data and Key Metrics Changes - The company noted that the AECs have become the de facto standard for inter-rack connectivity, displacing traditional optical connections [6][7]. - The total addressable market (TAM) for AECs and IC solutions is projected to exceed $10 billion, more than tripling from 18 months ago [15][16]. Company Strategy and Development Direction - The company is focused on expanding its product offerings with three new growth pillars: Zero-flap Optics, Active LED Cables (ALCs), and OmniConnect gearboxes, each representing multi-billion dollar market opportunities [11][12][13]. - The strategy emphasizes delivering high-reliability and power-efficient solutions tailored to the needs of AI training and inference clusters [5][6]. Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in continued revenue growth through fiscal 2026 and beyond, driven by the ramp-up of new product categories and existing AEC and IC businesses [16]. - The company anticipates significant year-over-year growth from its top customers and expects to strengthen revenue diversification [21][22]. Other Important Information - The company is well-capitalized to invest in growth opportunities, with a substantial cash buffer and plans for continued innovation in connectivity solutions [20]. - The management highlighted the importance of reliability and power efficiency in their product offerings, which are critical for the evolving demands of AI infrastructure [30][31]. Q&A Session Summary Question: Expansion of the AEC market and ALC market potential - Management indicated that the ALC market could be double the AEC TAM, driven by both quantity and average selling price (ASP) increases [24]. Question: Customer revenue contributions - The largest customer contributed 42% of revenue, followed by others at 24%, 16%, and 11%, with expectations for continued growth and diversification [26][27]. Question: Focus on system-level products - The company is committed to expanding its portfolio at the system level, with a focus on delivering non-commodity solutions that exceed industry standards [28][29]. Question: AEC supply constraints - Management does not foresee concerns regarding AEC production capacity, citing a strong partnership with manufacturing providers [41][42]. Question: Transition to higher-speed connections - The company confirmed that it is in production with 25, 50, and 100 gig per lane solutions, with expectations for future transitions to 200 gig per lane [45][46]. Question: Licensing of AEC IP - The decision to license AEC IP reflects the company's established competitive position and the need to protect its innovations in a growing market [60].

Financial Data and Key Metrics Changes - Credo reported revenue of $135 million for Q3 2025, representing an 87% sequential increase and a 154% year-over-year increase [8][32] - Non-GAAP gross margin was 63.8% for Q3, with product gross margin (excluding product engineering services) at 62.4%, up over 200 basis points sequentially and over 900 basis points year-over-year [32][66] Business Line Data and Key Metrics Changes - The AEC product line achieved strong triple-digit sequential growth, contributing significantly to the overall revenue increase [33][18] - The product business generated $132 million in revenue, up 91% sequentially and 155% year-over-year, while the IP business generated $3 million [32][34] Market Data and Key Metrics Changes - The largest customer accounted for 86% of revenue in Q3, with expectations of diversifying the customer base in the coming quarters [35][39] - The total addressable market (TAM) for PCIe retimers is expected to exceed $1 billion by 2027, indicating significant growth potential [28] Company Strategy and Development Direction - Credo's multi-tiered innovation strategy focuses on SerDes technology, integrated circuit design, and system-level solutions, which are expected to drive future growth [11][14] - The company plans to expand its solutions to the PCIe protocol, addressing a larger connectivity opportunity with AI scale-out and scale-up networks [15] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the expanding market opportunity for high-speed connectivity driven by AI investments [29][30] - The company anticipates continued revenue growth based on customer forecasts, new qualifications, and design engagements [19][28] Other Important Information - Credo is actively engaged with multiple hyperscalers, achieving volume production with three and in qualification with two additional customers [18][44] - The company is set to demonstrate its PCIe AECs at NVIDIA's GTC show, indicating ongoing innovation and customer engagement [19] Q&A Session Summary Question: What is the size of the largest customer and the adoption of AEC? - The largest customer accounted for 86% of revenue, and AEC opportunities are expanding significantly [39][40] Question: How does the company view customer concentration and future growth? - Q3 was an outlier, and the company expects to see diversification with 3 to 4 customers contributing over 10% of revenue in the future [40][41] Question: What is the outlook for the PCIe switching ecosystem? - The company sees potential in moving into the PCIe switching market as a natural progression from retimers [48][51] Question: How does the company view competition in the AEC space? - Credo focuses on being the best partner to customers, emphasizing innovation and reliability over competition [125][126] Question: What is the expected ramp for new customers? - The company anticipates significant ramping for new customers in fiscal '26, with multiple projects across the customer base [96][135]