$500 purple cables put Credo in middle of the AI boom

In July, Elon Musk posted photos from inside an xAI data center called Colossus 2, which the artificial intelligence startup aims to turn into a massive supercomputing facility in Memphis, Tennessee.

Musk’s pictures, posted to his X feed, didn’t show off the pricey Nvidia racks that are filled with powerful graphics processing units. Rather, he focused on the wires behind the servers, including one image with thousands of neatly organized purple cables connecting the computers together.

Those purple cables are the signature offering of Credo, a 17-year-old Silicon Valley-based semiconductor company whose name rarely gets mentioned alongside the leaders of the AI boom.

But Wall Street has taken notice.

Credo shares have more than doubled this year to $143.61 after soaring 245% in 2024. The company’s market cap, which was about $1.4 billion at the time of its IPO in 2022, now sits at close to $25 billion. Credo is angling to position itself as a key supplier in the trillion-dollar AI infrastructure expansion, and is benefiting as the money flows downstream.

The stock jumped 5% on Friday after analysts at JPMorgan Chase initiated coverage with the equivalent of a buy rating and a $165 stock price. They said the active electrical cable (AEC) market, which Credo pioneered, is on pace to hit $4 billion by 2028, as all the major hyperscalers invest in data center buildouts.

“The industry outlook is supported by increasing deployments from major companies such as Amazon, Microsoft, and xAI as well as broadening adoption, including Meta and more,” the analysts wrote. They predict annualized revenue growth for Credo of at least 50% through 2028.

Revenue in fiscal 2025, which ended in early May, more than doubled to $436.8 million. The company also turned profitable, recording net income of $52.2 million after losing $28.4 million the prior year. Analysts are expecting sales to more than double again in fiscal 2026 to almost $1 billion, according to LSEG.

Credo’s purple AECs cost between $300 and $500 each, depending on bulk discounts and other negotiations, according to an estimate from the 650 Group, an industry researcher. They are sturdy, moderately thick copper cables wrapped in a braided covering with big connectors containing chips on each side.

Much of the excitement around Credo is driven by the AI boom, which to this point has been driven by a handful of hyperscalers that are rapidly building data centers for future expected workloads. Analysts expect $1 trillion in spending on AI data centers by 2030, but any pullback from the major cloud providers or scaling back in OpenAI’s plans could hurt many suppliers, including Credo.

For now, projections are way up and to the right.

“In the past, Credo’s opportunity was one cable per server, but now Credo’s opportunity is nine cables per server,” said Alan Weckel, an analyst at 650 Group. He estimates that Credo has 88% of the market for AECs, which are also made by Astera Labs and Marvell.

Many GPUs are connected by fiber optic cables powered by components made by companies like Broadcom and Coherent. AECs offer an alternative to fiber optic cables. They have chips called digital signal processors on both sides that use sophisticated algorithms to pull data out of the cable, enabling much longer lengths than traditional copper cables. Credo’s longest AEC is seven meters long.

Credo CEO Bill Brennan, who joined the company in 2013, told CNBC that hyperscalers are choosing his company’s cables because they’re more reliable than fiber optic cables. He said customers are trying to avoid what’s called a “link flap,” where one part of an AI cluster goes offline because the optical cable connecting them fails, costing hours of pricey GPU time.

“It can literally shut down an entire data center,” Brennan said.

He said Credo is increasingly working with hyperscalers in the early stages of planning large AI clusters, especially as some designs become denser, allowing more servers to be connected by shorter cables.

“When you connect with these hyperscalers, the numbers…