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How to play AI growth with CRDO ( Credo )
What is Credo’s business – AI data centers require a lot of high speed data connectivity. Credo is a leader in that area. The company offers a variety of products, including optical devices and data networking chips, but its active electrical cables ( AECs ), are the biggest chunk of its business.
Growth outlook – The company has continued expanding its business with the largest cloud service providers helping Credo benefit from growing demand for AECs, placing the company on the trajectory for strong revenue growth and expanding margins in the coming years. J.P. Morgan analyst Joseph Cardoso initiated coverage on $CRDO with an Overweight rating and established a $165 stock target. The analyst predicts Credo will be able to grow its revenue at more than 50% a year and its earnings at more than 70% a year through 2028. Customers include Microsoft, Amazon.com, xAI, and Meta Platforms. Oracle and Google are potential future customers. “Given our expectation for solid improvement in FCF generation and an already healthy balance sheet, we would not rule out a greater appetite for capital allocation, which would represent upside to our outlook,” the analyst wrote. Last month, Credo shares rose after the company reported better-than-expected earnings results, citing strong demand from large technology companies.
About AECs – Credo invented the AEC, which is a copper-based cable used to attach AI servers to networking switches. AECs are more reliable and consume less power than optical cables and can be used for longer distances than traditional passive copper cables.
