Evercore ISI has recently highlighted a promising player in AI infrastructure by starting its coverage of Credo Technology Group. With an Outperform rating and an ambitious price target of $325, Evercore is betting on the importance of Credo's high-speed connectivity products as AI data centers grow larger and more complex.
Are faster connections essential for AI models? Yes, they are crucial. AI workloads require quicker data transfers between chips, and Credo specializes in producing the cables essential for this task. Their Active Electrical Cables, known as AECs, are designed specifically for the high-bandwidth and low-latency demands that AI systems entail.
What do the growth projections look like? Analyst Mark Lipacis is forecasting a dramatic 100% revenue growth for Credo's AEC technology in 2026, followed by another substantial growth of 60% in 2027. Earnings predictions align with this optimistic outlook, with Lipacis estimating that by 2028, Credo could achieve earnings per share exceeding $13. This estimate is about 40% higher than the current consensus among Wall Street analysts.
The broader revenue landscape for AI data centers further supports this bullish outlook. The market is anticipated to expand dramatically, with investments rising from around $1.4 billion in 2025 to over $3 billion shortly thereafter.
What advantages do copper cables have for AI infrastructure? Copper-based AECs are significantly more cost-effective and energy-efficient over shorter distances compared to their optical counterparts. This factor is crucial when establishing the numerous connections necessary in dense AI training environments.
As AI data centers evolve, connections will increasingly rely on optical technology for longer distances, and Credo aims to transition from copper to optical solutions. Observers note that this strategic move could allow Credo to leverage its robust position in the copper market as a stepping stone to success in the optical domain.
On the same day that Evercore announced its initiation of coverage on Credo, it also downgraded TE Connectivity from Outperform to In Line. This action indicates the preference for specialized, high-growth entities like Credo over more generalized industrial connectivity companies in light of the expanding AI connectivity market.
What should investors be cautious about regarding this investment opportunity? The anticipated 100% revenue growth and the strategic pivot to optical technology represent a challenging combination for execution. The substantial 40% discrepancy between Evercore's EPS estimate for 2028 and the consensus estimates highlights the differences in market expectations and the associated risks for investors.