Credo's stock has had a rough year. Here's why one analyst thinks now is the time to buy it.

By Britney Nguyen

The strength of the market for AECs is underappreciated and fears over optical are overblown, a Jefferies analyst says

Jefferies sees AEC adoption growing from AI and general-purpose workloads.

The debate over whether copper-based connectivity will be replaced by optical solutions in the artificial-intelligence build-out has weighed on Credo Technology's stock so far this year, but one analyst sees that concern as a "significant disconnect" from reality.

Credo (CRDO) makes copper-based active electrical cables, or AECs, which are embedded with chips and used for high-speed data transmission between servers in data centers. Investors have become wary about the growth opportunity for copper connectivity amid the rise of co-packaged optics, or CPO, which integrates optical transceivers directly into a package with a chip, such as a graphics processing unit.

However, demand from both artificial-intelligence and general-purpose workloads provides "plenty of runway for AECs" to grow, Jefferies analyst Blayne Curtis wrote in a Sunday note to clients in which he initiated coverage of Credo. Adoption of AECs is still in the early stages, he said, and the company's 800G and 1.6T AECs make for "a larger and longer opportunity than investors currently expect."

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Curtis has a buy rating on Credo's stock, and his $175 price target represents 46% upside from the stock's closing price of $119.59 on Friday.

Credo's stock has fallen almost 17% so far this year, but Curtis sees "a meaningful opportunity to invest in a premium growth name at significantly discounted valuation."

The Jefferies team is modeling for the total market of AEC units to reach 8.6 million this year and 12.3 million in 2027, or 9.5 million and 14.6 million, respectively, in the bull case. In the latter scenario, Curtis expects Credo to retain 70% share of the market in 2027, which would translate to $3 billion in AEC revenue alone - above the consensus view for $2.3 billion, he said.

Credo is "the outright technology leader in the space," Curtis said, and he expects it to remain dominant in the AEC market for the next several years, despite growing competition from Astera Labs (ALAB) and Marvell Technology (MRVL).

"Fears of the death of copper or potential impact from CPO are wildly overblown," Curtis said.

Investors are underappreciating the growth potential not only for AECs, he said, but also for Credo's next-generation active LED cables, or ALCs, which are emerging as a high-speed, energy-efficient optical solution for AI data centers. The ALCs are seen as a middle ground between AECs and traditional optical components.

In his view, CPO for scale-out and scale-up networking in AI data centers is "essentially a complete non-factor for [Credo's] business."

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Meanwhile, Credo is making its way into the optical market with its ZeroFlap optical transceivers, which are used to improve reliability and stability of network connections in AI chip clusters.

Curtis sees Credo potentially generating more than $300 million in annual revenue from its ZeroFlap optical transceivers, which he said "represents a major swing factor" for diversification of both its product offerings and revenue.

-Britney Nguyen

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