On Thursday, Needham raised the price target for Credo Technology Group Holding Ltd. (NASDAQ: NASDAQ:CRDO) to $29 from the previous $26, while maintaining a Buy rating on the stock. The firm's decision follows Credo's announcement of a slight outperformance and upward revision in its fourth-quarter financials, driven by accelerating AEC revenue from a second hyperscaler customer.
Credo Technology reported that AI workloads generated approximately 75% of its quarterly revenue, totaling around $45 million. This figure is anticipated to double by the fourth quarter of fiscal year 2025. The company also revealed better-than-expected gross margins (GMs) in the near term, attributed primarily to licensing revenue. Furthermore, GMs are projected to be approximately 200 basis points higher for the fiscal year 2025 due to improvements in product GMs.
The company's AEC business is thriving, with robust performance across several areas including product ramps, customer engagements, and competitive positioning. Additionally, Credo is increasing the number of connections per GPU. The firm also noted that optical DSPs are on track to represent over 10% of Credo's revenue in the fiscal year 2025.
Needham's revised estimates for Credo Technology are comprehensive, encompassing an increase across all financial metrics. The firm has also introduced its fiscal year 2027 model. The price target of $29 is based on 9x enterprise value to sales (EV/S), calculated from the firm's calendar year 2026 revenue estimate of $524 million. Credo Technology continues to be Needham's Conviction List pick for the year 2024.
InvestingPro Insights
In light of Needham's optimistic outlook on Credo Technology Group Holding Ltd. (NASDAQ: CRDO), current metrics from InvestingPro provide a mixed picture that investors may find insightful. Credo holds a market cap of approximately $3.3 billion, indicating a significant presence in its sector. Despite a negative P/E ratio of -99.32, reflecting challenges in profitability over the last twelve months, the company's PEG ratio of 0.22 suggests potential for future earnings growth relative to its peers.
An InvestingPro Tip highlights that Credo's stock price movements have been quite volatile, which could be of interest to those with a higher risk tolerance. Additionally, analysts predict that the company will be profitable this year, which aligns with Needham's positive stance.
For those interested in further analysis, there are additional InvestingPro Tips available for CRDO, which can be accessed at https://www.investing.com/pro/CRDO. Readers can use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription. With 9 more tips available, investors have a wealth of information at their fingertips to inform their investment decisions.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.