It trades at 812 times earnings, but I just made a big investment in this top-rated AI growth stock

According to quantitative modelling, this is the best growth stock around as we enter 2025. Dr James Fox justifies his recent investment decision.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Investor looking at stock graph on a tablet with their finger hovering over the Buy button

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Having re-jigged my portfolio for this year and in light of a changing market environment, I’ve made my first big investment of 2025. The stock I choose was Credo Technology (NASDAQ:CRDO). This provider of high-speed connectivity solutions has plenty of supportive trends as we move through January and it’s the highest-rated growth stock using a model that focuses on data.

What does it do?

US-listed Credo Technology specialises in high-performance connectivity solutions, including optical, electrical, and mixed-signal technologies, this also includes integrated circuits and active electrical cables (AECs). Essentially, its tech addresses demand for faster and more energy-efficient data transfer. Unsurprisingly, this is critical for artificial intelligence (AI) infrastructure such as data centres.

Here’s why it’s in focus for 2025

ChatGPT and the start of the AI revolution triggered something of a gold rush, with investors diving into the picks and shovels of the sector — namely companies like Nvidia that provide the all-important graphics processing units (GPUs).

Should you invest £1,000 in Imperial Brands right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Imperial Brands made the list?

See the 6 stocks

While Nvidia’s GPUs powered the first wave of AI development, the ecosystem is evolving. Nvidia remains dominant in GPUs, but hyperscalers are now strategically searching for specialised vendors who can help them optimise and customise their infrastructure.

Hyperscalers are the companies, like Amazon’s AWS, behind large-scale data centres that provide cloud computing, networking, and data storage services. They’re packed full of Nvidia GPUs and AMD servers and are designed to be highly scalable and can accommodate massive workloads. 

And networking is a key part of this efficiency of these hyperscale assets. Hyperscalers use Credo’s AEC products to build customised networking products, including network switches that help reduce redundancy and improve efficiency. Broadcom recently suggested that networking solutions market size will surge in the years through to 2027 and beyond.

Can a crazy valuation be easily justified?

The stock is currently trading at 812 times earnings from the past 12 months. That’s truly huge. But the expected earnings growth for this 2025 fiscal year is a phenomenal 450%. In turn, that takes the forward price-to-earnings (P/E) ratio down to 123 times. While earnings growth can’t carry on at 450% year after year, the subsequent forecast is still positive and very recent analysts suggests the consensus may underestimate the company’s true potential.

And while I’ve seen some reports suggesting data centre spending has peaked — near $280bn in 2024 — that simply doesn’t appear to be the case. Microsoft alone plans to spend $80bn on data centres in 2025, while the UAE’s DAMAC group just announced a $20bn plan to build data centres in the US.

The risks, of course, relate to this sky-high near-term valuation. If it fails to deliver on these huge growth expectations, then the stock could come plummeting back to earth. As such, all eyes should be on 4 March, when the company reports on its Q3 earnings. Moreover, there are some concerns about broader saturation in the sector, and companies in this fast-moving tech space will be aware that new technological developments could change the ecosystem and demand environment.

For now at least, Credo’s product line appears to be what the industry needs.

But this isn’t the only opportunity that’s caught my attention this week. Here are:

5 Shares for the Future of Energy

Investors who don’t own energy shares need to see this now.

Because Mark Rogers — The Motley Fool UK’s Director of Investing — sees 2 key reasons why energy is set to soar.

While sanctions slam Russian supplies, nations are also racing to achieve net zero emissions, he says. Mark believes 5 companies in particular are poised for spectacular profits.

Open this new report5 Shares for the Future of Energy — and discover:

  • Britain’s Energy Fort Knox, now controlling 30% of UK energy storage
  • How to potentially get paid by the weather
  • Electric Vehicles’ secret backdoor opportunity
  • One dead simple stock for the new nuclear boom

Click the button below to find out how you can get your hands on the full report now, and as a thank you for your interest, we’ll send you one of the five picks — absolutely free!

Grab your FREE Energy recommendation now

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. James Fox has positions in Advanced Micro Devices, Credo Technology, and Nvidia. The Motley Fool UK has recommended Advanced Micro Devices, Amazon, and Nvidia. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

Here’s the dividend forecast for Rolls-Royce shares as Trump rocks the markets

Rolls-Royce shares have joined in the volatility over the past week. However, with the direction being largely downwards, the dividend…

Read more »

Young Asian man drinking coffee at home and looking at his phone
Investing Articles

Dividend yields of up to 11%! Here are 3 UK passive income stocks to consider

Searching for ways to supercharge your passive income with UK dividend stocks? Here are three that have grabbed our writer's…

Read more »

Young Caucasian woman at the street withdrawing money at the ATM
Investing Articles

£10,000 invested in NatWest shares at the start of 2025 is now worth…

NatWest shares surged into 2025, but things have become a little more complicated in recent weeks. Dr James Fox explores.

Read more »

Investing For Beginners

Why the FTSE 250 could outperform the FTSE 100 for the rest of the year

Jon Smith explains why the FTSE 250 could do better than its big brother when factoring in domestic exposure and…

Read more »

Three signposts pointing in different directions, with 'Buy' 'Sell' and 'Hold' on
Investing Articles

Tariff fears send the Lloyds share price tumbling, but the dividend yield is climbing

Just when the Lloyds Banking Group share price had been rising steadily, along comes a global upheaval to knock it…

Read more »

Bus waiting in front of the London Stock Exchange on a sunny day.
Investing Articles

Here’s how a stock market crash could help an investor retire years early

A stock market crash can be alarming -- but for the well-prepared investor, it can also be an exceptional opportunity…

Read more »

Investing Articles

1 key fact to remember in this stock market correction

This writer takes a look at a FTSE 100 investment trust that is catching his eye after the recent massive…

Read more »

Investing Articles

I was wrong about the Tesla stock price!

Tesla stock's been affected more than most by ‘Liberation Day’. But our writer has other concerns about Elon Musk’s company.

Read more »