Shares of data center connectivity company Credo Technology (CRDO +18.12%) rocketed 19.8% this week through Thursday trading, according to data from S&P Global Market Intelligence.
Credo reported its fiscal fourth-quarter earnings report this week, posting triple-digit growth on the back of strong adoption of its data center connectivity solutions.
Importantly, Credo also noted two more hyperscaler customers that would come online later this year, diversifying the company away from its main customer, Amazon.
NASDAQ: CRDO
Key Data Points
Credo is in the steep part of the "S"-curve
In its fiscal fourth quarter, Credo grew revenue a whopping 179.7% to $170 million, topping estimates by over $10 million, and also posted $0.35 in non-GAAP (adjusted) earnings per share, beating expectations by $0.08.
Credo developed a novel type of data center cable called active electrical cables, which offer better copper connectivity over a longer distance and in a more "versatile" form factor than other solutions. Thus, AECs have been taking share from direct-attach cables and laser-based optical connections within AI data centers.
As an AEC pioneer, Credo has benefited from the exploding demand for artificial intelligence data centers and connectivity. Amazon Web Services was an early adopter and made up 61% of Credo's revenue last quarter.
However, Credo is now seeing wider adoption of its solutions, with Microsoft and Elon Musk's xAI growing to 12% and 11% of last quarter's revenue. Moreover, on the conference call, management noted two more "hyper-scalers" will become customers in the fiscal year ahead.
Credo is an AI darling, but the stock is pricey
Credo's management guided for 12% sequential growth in the current quarter, but given recent history, the company will probably beat those expectations handily. For their part, analysts expect 82.4% revenue growth in the year ahead.
Shares now trade at roughly 50 times forward earnings, which accounts for all that growth ahead. So, Credo, unfortunately, is still quite expensive, even more so than other AI leaders. Nevertheless, it's hard to deny its strong growth prospects. The question, of course, is how long that strong growth lasts, because investors are now pricing in several years of it.
