Jefferies Financial Group Inc. has initiated a "buy" rating on Credo (CRDO.US), stating that the artificial intelligence opportunities are severely underestimated.

Jefferies Financial Group Inc. for the first time covers high-speed interconnect solutions company Credo Technology (CRDO.US), giving it a "buy" rating with a target price of $175. Credo surged over 12% on Monday to $134.36, with a 43% increase for the month. The analyst team led by Blayne Curtis at Jefferies Financial Group Inc. said, "We see an excellent opportunity to invest in high-quality growth stocks, whose valuation is significantly lower than their actual value. We also found that there is a huge disconnect between the market's view of Credo's opportunities in the field of artificial intelligence over the next few years and the actual opportunities." Jefferies Financial Group Inc. analysts believe that Credo's Active Electrical Cables (AEC) will continue to play an important role in the construction of data centers. Curtis said, "AEC, by combining artificial intelligence with general computing workloads, has a clear outlook for sustained growth, and ZF Optics products play a significant role in product and revenue diversification. Concerns about the potential impact of copper cable decline or Co-Packaged Optics (CPO) have been greatly exaggerated, and the market is almost unaware of the opportunities for the company's Active LED Cables (ALC) and OmniConnect products." It is reported that Credo's entry into the optical transceiver market with its ZeroFlap Optics products has brought it an opportunity for over $3 billion in annual revenue. Curtis added, "Our estimates show that Oracle Corporation's total transmission-related expenses in the 2027 fiscal year are approximately $4.5 billion, while the total addressable market for Credo amounts to $2.2 billion. We expect Credo to capture 10% of this $2.2 billion market, representing 5% of Oracle Corporation's total transmission-related expenses, which means ZF Optics revenue will reach $225 million. We expect revenue from new customers to surpass $75 million, with these customers including NeoClouds and at least one hyperscale data center operator. The company's management also indicates that qualification reviews are currently underway." Credo's stock price fell from its high of $187 at the end of last year, in part due to market concerns about the impact of CPO on the company's business. Curtis said, "Recently, investors' interest in CPO has increased significantly, largely due to NVIDIA Corporation's announcement of its Scale-Up Optical technology roadmap at the GTC conference. In our view, both Scale-Out and Scale-Up CPO solutions currently have little impact on Credo's business."