On Tuesday, Needham maintained a Buy rating on shares of Credo Technology Group Holding Ltd. (NASDAQ:CRDO) and significantly increased the price target from $43.00 to $70.00. This adjustment comes after Credo reported robust financial results that surpassed expectations, prompting a revision of revenue forecasts.
According to InvestingPro data, the stock is currently trading near its 52-week high of $51.40, with analysis indicating the shares may be overvalued at current levels.
Credo's reported earnings beat forecasts by a substantial margin, with revenues $35 million higher than anticipated, indicating a stronger-than-expected upward trend. This positive outcome has led to a revision of fiscal year 2025 revenue estimates from $316 million to $385 million. InvestingPro data shows impressive revenue growth forecasts of 65% for FY2025, supported by strong gross margins of 62.47%.
The analyst from Needham highlighted three key takeaways from Credo's performance. First, the second half of fiscal year 2025's revenue surge is attributed to a greater number of XPU deployments. Secondly, the long-term growth in AEC (Active Electrical Cable) is expected to be fueled by higher attachment rates and the shift to higher-speed AECs.
Finally, gross margins are projected to expand more rapidly than previously thought as the impact of the Amazon (NASDAQ:AMZN) warrant is set to diminish in the fourth quarter of fiscal year 2025.
The raised stock price target to $70 is based on an enterprise value that is 18 times the new calendar year 2026 revenue estimate of $594 million. This optimistic outlook is predicated on the company's strong performance and expected continued growth in the technology sector.
Needham's revised price target reflects confidence in Credo's future prospects, taking into account the company's current trajectory and market position. The firm's analysis suggests that Credo is well-positioned to capitalize on the expanding demand for its technology solutions.
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