Markets / Industries / Networking & Optical
Industry view · Networking & Optical
The AI buildout has turned plumbing into a profit center. NVIDIA's networking arm alone booked $8.2 billion in a single quarter, Broadcom's AI revenue reached roughly $20 billion for FY2025, and hyperscalers are steering a ~$600-690 billion 2026 capex wave toward the switches, optics and cables that decide whether a million GPUs behave like one computer.
01 · The thesis
For a decade, networking was a cost to be minimized. AI inverted that. Training a frontier model means thousands of GPUs exchanging gradients every step; idle accelerators waiting on data are the most expensive idle assets in technology. As Jensen Huang put it, copper runs out at a meter or two, which is why NVIDIA, Broadcom, Arista and Cisco are all racing the same curve from 400G to 800G to 1.6T ports, and toward optics fused directly onto the switch.
The economics are brutal and bifurcated. NVIDIA's vertically integrated NVLink-InfiniBand-Spectrum-X stack made it, by its own claim, the largest networking business in the world at ~$31B for FY2026. But Ethernet is clawing back the scale-out layer on cost and openness, Broadcom's merchant silicon is arming everyone else, and a cohort of photonics startups raised billions betting that light, not copper, moves the next generation of clusters.
Broadcom's Tomahawk 6 hit 102.4 Tbps and the company holds a commanding share of high-end switch ASICs, while NVIDIA and hyperscalers pursue captive designs.
Ethernet is overtaking InfiniBand in AI scale-out on cost and openness, lifting Arista, Cisco and white-box builders.
AI east-west traffic is driving a record optics cycle, with 800G-plus optics jumping toward a majority of shipments by 2026.
The unglamorous chips between switch and port — DSPs, retimers and active copper cables — became a high-growth niche as port speeds climbed.
Putting optics in the switch package promises huge power savings; 2026 marks the first volume CPO ramp on both InfiniBand and Ethernet.
02 · Public players & exposure
We plot the listed players on two editorial axes — how exposed each is to AI disruption, against how ready its data, brand and position are to be the answer. The figures in the table are sourced; the placement is our read.
| Company | Stance | The sourced fact |
|---|---|---|
| NVIDIANVDA | Full-stack incumbent | Networking revenue reached $8.2B in Q3 FY2026, up 162% YoY, and ~$31B for the full fiscal year — by NVIDIA's account the largest networking business in the world (NVIDIA Q3 FY26 results; CRN). |
| BroadcomAVGO | Merchant arms dealer | AI revenue grew ~65% to roughly $20B in FY2025; its Tomahawk 6 switch delivers 102.4 Tbps and AI backlog exceeds $73B (Broadcom FY25 call; Futurum). |
| Arista NetworksANET | Ethernet pure-play | FY2025 revenue hit $9.0B; AI networking revenue exceeded its $1.5B goal and management guided $3.25B of AI revenue for 2026 (Arista Q4 FY25 results; Chipstrat). |
| Cisco SystemsCSCO | Incumbent re-rating | AI infrastructure orders topped $2B in FY2025 (double the $1B target); management now targets ~$9B of AI orders in FY2026 (Cisco FY25 call; CRN). |
| CoherentCOHR | Optics leader | Held ~22.2% of the optical transceiver market in 2025, the single largest share, and is a core supplier of optical components for AI datacom (GMInsights). |
| MarvellMRVL | Custom + optics | A rising share of revenue now comes from AI optics, and it acquired photonics firm Celestial AI for a $3.25B base (closed Feb 2026), up to $5.5B with earn-outs (Marvell; Contrary Research). |
| Credo TechnologyCRDO | AEC breakout | FY2025 revenue more than doubled (+126%) to $436.8M; the active electrical cable market it pioneered is forecast to reach ~$4B by 2028 (Credo; CNBC/JPMorgan). |
| LumentumLITE | Laser & optics | Named in NVIDIA's reported ~$4B of optics commitments to Lumentum and Coherent in early 2026, and demoed a 1.6T Marvell DSP at ~16W at ECOC 2025 (TAMradar; Marvell). |
| Ayar Labspvt-AYAR | CPO challenger | Raised a $500M Series E in March 2026 at a $3.75B valuation (~$870M total), backed by NVIDIA, AMD and others, to scale co-packaged optics (Ayar Labs; TAMradar). |
| Lightmatterpvt-LMAT | Photonic interconnect | Valued at $4.4B with ~$850M raised (Series D, late 2024); its Passage L200 claims over 200 Tbps of optical I/O bandwidth (Contrary Research). |
03 · The two clocks
Three timing pressures that separate the durable franchises from the momentum trades
The speed-transition clock is the fastest it has ever run. The industry is compressing the 400G to 800G to 1.6T migration into roughly two years, and Dell'Oro expects 1.6 Tbps switches to ship in volume in 2026, surpassing 5 million ports within one to two years — faster than the 800G ramp before it. Each step raises switch ASPs and the number of optical modules per system.
The Ethernet-vs-InfiniBand clock is past midnight for InfiniBand's monopoly. NVIDIA's own Spectrum-X Ethernet is now out-shipping its Quantum InfiniBand, and 650 Group forecasts AI scale-out Ethernet revenue surging past $100B by 2030. The open Ultra Ethernet Consortium shipped its 1.0 spec in 2025, standardizing the features that close InfiniBand's performance gap.
The co-packaged-optics clock is the wild card. After years of debate, 2026 is the first volume CPO ramp on both InfiniBand and Ethernet (Dell'Oro), led by NVIDIA's Quantum-X and Spectrum-X Photonics. Success adds multi-billions to the optics TAM and threatens the pluggable-transceiver business model; failure strands a lot of startup capital.
04 · Private flagships
The companies attacking this industry AI-first, with disclosed funding where available:
Builds TeraPHY optical I/O chiplets that let thousands of GPUs act as one system, targeting copper's power wall in scale-up fabrics; claims an industry-first 8 Tbps UCIe optical chiplet.
Its Passage platform pushes edgeless optical I/O across the die; the L200 claims 200+ Tbps of bandwidth and up to 8x faster training on large models.
Developed an optical 'Photonic Fabric' to move data and pool memory across racks with light instead of electricity; pursued a fuller rack-scale stack than chiplet-only rivals.
Pioneered purple 'ZeroFlap' active electrical cables that link GPUs to switches more cheaply and reliably than optics for short reaches inside AI racks.
Supplies retimers, smart cable modules and PCIe/CXL fabric switches that knit accelerators, CPUs and memory together inside AI servers.
Shifted from pure contract manufacturing to designing its own 1.6TbE DS6000/DS6001 switches running open-source SONiC, courting hyperscalers that want merchant-silicon boxes.
05 · Signals
At GTC, NVIDIA announced Quantum-X (InfiniBand, 2H25) and Spectrum-X Photonics (Ethernet, 2026) co-packaged-optics switches, with an ecosystem spanning TSMC, Coherent, Corning and Lumentum.
Cisco closed FY2025 with over $2B in AI infrastructure orders — double its original $1B goal — and guided toward roughly $9B of AI orders in FY2026 on triple-digit hyperscaler growth.
The Ultra Ethernet Consortium finalized its 1.0 specification, hardening open Ethernet as the standard for AI back-end networks against InfiniBand.
Marvell announced (alongside Q3 earnings) the acquisition of photonic-interconnect startup Celestial AI for a $3.25B base (up to $5.5B with earn-outs), closing Feb 2026 — incumbents buying their way into co-packaged optics.
NVIDIA reportedly committed ~$4B to Lumentum and Coherent, and Ayar Labs closed a $500M Series E — capital flooding into the optics layer ahead of the 1.6T and CPO ramp.
06 · The exposure read
AI rewards clean, structured advantage and punishes friction. The line runs through who owns the data, the brand and the customer — and who is merely a step the technology can route around.
Sources
NVIDIA Q3 FY2026 financial results · Futurum — NVIDIA Q3 FY2026 networking $8.2B · CRN — NVIDIA 'world's largest networking business', $31B FY26 · Broadcom Q4/FY2025 results (AI ~$20B, Tomahawk 6, $73B backlog) · Arista Q4/FY2025 results ($9.0B revenue) · Chipstrat — Arista AI networking, $3.25B 2026 guide · CRN — Cisco record AI infrastructure orders >$2B FY25 · Cignal AI — optical components ~$25B in 2025 · GMInsights — optical transceiver market, Coherent ~22.2% share · Dell'Oro — 2026 data center networking predictions (1.6T, CPO) · CNBC — Credo AECs, $4B market by 2028 · Ayar Labs — $500M Series E at $3.75B valuation · Marvell — completes acquisition of Celestial AI ($3.25B base) · 650 Group — Ethernet to surge in scale-out and scale-up