Credo’s (CRDO) shares extended their 12.35% rally on Monday by climbing another 16% in Tuesday’s pre-market trading. The latter came after a U.S.-based connectivity solutions provider announced a $750 million cash offer to acquire Israeli silicon photonics developer DustPhotonics to boost its optical interconnect business.
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Optical interconnects are systems designed to achieve better efficiency in data transmission between computers, server racks, and chips using light instead of traditional copper wiring.
Credo designs and provides connectivity solutions such as integrated circuits, electrical cables, and SerDes chipsets that are in high demand by data center operators for high-speed connectivity. The California-based company is also offering 0.92 million of its ordinary shares for the deal — this is roughly $124 million based on CRDO’s closing price of $134.36 on Monday.
How Big Is the Optical Interconnect Market?
As hyperscalers such as Alphabet (GOOGL), Amazon (AMZN), and Meta (META) continue to pump billions of dollars to build out their AI infrastructure, demand for these systems has risen sharply. The market for these systems is expected to grow at a compound annual growth rate of 12.06% to reach $33.28 billion by 2031, according to Mordor Intelligence.
In addition to its cash and stock offer, Credo plans to release an additional 3.21 million of its shares to DustPhotonics — which makes photonic integrated circuits that power speedy data transfers in data centers — if certain financial milestones are achieved.
Credo’s takeover offer for DustPhotonics comes as Jefferies’ five-star analyst Blayne Curtis this week flagged the company’s AI opportunity, noting that active electrical cables have a “clear runway for continued growth” due to their usage in AI and general-purpose compute workloads.
Is CRDO a Strong Buy?
On Wall Street, analysts have a Strong Buy consensus rating on Credo’s shares. This is based on 13 Buys and one Hold issued over the past three months.
In addition, the average CRDO price target of $190.23 implies about 42% upside from current trading levels.
