Nvidia and Arista Networks have thrived as sellers of high-end technology to cloud computing giants. But now the two companies are competing head-on for the first time as their customers upgrade their internet data centers for artificial intelligence.
Coming into the heavyweight match, Nvidia is the dominant supplier of AI accelerator chips that turbocharge the processing power of computer servers. Meanwhile, Arista garners revenue from computer switches and routers that work inside data centers and connect racks of servers with long-distance communications networks.
Amid the emergence of "generative" AI, what's new is that cloud computing giants are building new data centers with clusters of AI computer servers. Those clusters may scale to hundreds or thousands of servers. And those AI server clusters, in turn, are connected with high-bandwidth computer networking technology.
AI Ethernet Market To Jump
Further, cloud computer giants are eyeing a new version of Ethernet networking technology to connect the clusters of AI servers. Market research firm 650 Group forecasts that the "back end" AI Ethernet market will soar to $8.74 billion in revenue by 2028, up from $577 million in 2023.
"The good news is that the market is growing so fast and will be so large that in absolute dollars, Arista, Cisco Systems and Nvidia will all show huge growth," said Alan Weckel, analyst at 650 Group.
But that doesn't mean a fierce marketing battle isn't on the horizon. Nvidia and Arista both aim to win big contracts from cloud computing giants Amazon.com, Microsoft and Google parent Alphabet as well as other big spenders on AI infrastructure, such as Meta Platforms, Tesla and Apple.
Also, Nvidia and Arista have different strengths to leverage amid the AI battle.
"The market share question is a little tough," Weckel told IBD. "Nvidia is coming into Ethernet as a challenger with little existing market share. Therefore, they will be a share taker. Arista and Cisco have incumbency. This will likely cause a very tight position between vendors ranking one, two and three."
Ethernet Overtakes InfiniBand
However, it's not all gravy for Nvidia. New AI Ethernet network switches compete with Nvidia's InfiniBand chips, which whisk data from computer servers to storage devices. Nvidia acquired InfiniBand chipmaker Mellanox for $6.9 billion in 2020.
Hedging its bets, Nvidia also has been developing Ethernet network switches because they're expected to take over the market for performance reasons.
Analysts say Nvidia will be able to offer product bundles — Ethernet networking devices with its artificial intelligence accelerator chips. Nvidia's overall strategy is providing customers with an AI ecosystem, including its CUDA software platform for developing AI apps and workloads.
While Nvidia aims to provide a broad AI ecosystem to customers, the flip side is that some cloud computing buyers may not want to be locked in to one supplier.
"While Nvidia's pitch of a fully integrated system will win some fans, hyperscalers and enterprises will continue to push toward multi-vendor approaches (and open ecosystems), driving demand for Arista," William Blair analyst Sebastien Naji said in a report.
Further, Nvidia stock has jumped 162% in 2024, as of Aug. 19. Arista stock has climbed 49%. Also, Nvidia and Arista are among the top AI stocks to watch.
Arista, Cisco, HPE Back Consortium
In 2023, Arista joined with Cisco, Hewlett Packard Enterprise and other companies to form the Ultra Ethernet Consortium. The consortium now has over 60 member companies. Other players in the AI Ethernet networking market include Celestica and Nokia.
"The AI back-end network buildout to connect server clusters is a net new opportunity," said Dell'Oro analyst Sameh Boujelbene. "Almost everyone should be able to benefit to different degrees."
Boujelbene said Nvidia should be given credit for pivoting from InfiniBand to Ethernet. "They saw it coming," she said. "Their marketing strategy has shifted."
While some cloud computing titans may want to reduce their reliance on Nvidia, Boujelbene added that Nvidia still offers the best product bundle.
Arista AI Revenue Forecast
Meanwhile, Arista management has forecast $750 million in AI-related sales for 2025, with a good chunk of that coming from Ethernet networking.
"We consider Arista's AI forecast reasonable, but suspect bulls expect two times or more (revenue)," Raymond James analyst Simon Leopold said in a report.
"Arista has announced a suite of products optimized and designed specifically for AI clusters called Etherlink AI, including a software agent that runs on third-party network cards (from members of the Ultra Ethernet Consortium as well as Nvidia), and this could accelerate traction."
In addition, Arista has designed its Ethernet platform to work with AI accelerator chips from Broadcom, AMD and Intel. Broadcom and Arista, in fact, have formed an AI marketing partnership.
At 650 Group, Weckel says Arista's popular EOS networking operating system could give it an edge over Nvidia and Cisco.
Nvidia Stock: Spectrum-X Ramps Up
Raymond James' Leopold said the debate on Wall Street is no longer about market share shifting to Ethernet from InfiniBand. Instead, the debate is who will win the lion's share of the AI Ethernet market.
He noted that Nvidia has predicted that Spectrum-X, its Ethernet brand, will become a multibillion-dollar product line within a year.
Meanwhile, Nvidia has delayed shipments of its next-generation Blackwell B200 AI chips because of a manufacturing issue. Mass shipments to cloud computing clients will not take place until early 2025.
However, that's not expected to slow demand for its Spectrum-X Ethernet devices. Tesla could be Nvidia's initial customer, analysts say.
Arista's two biggest customers for computer network switches are Microsoft and Meta. Arista hasn't told Wall Street analysts whether they're buying Ethernet networking devices. On its second-quarter earnings call, Arista said it has four major AI networking trials underway.
At Morgan Stanley, analyst Meta Marshall said in a report: "We would note the company has said these four major AI trials are with Cloud Titans and could be for clusters that could approach 100,000 GPUs, but noted there are multiple other major AI trials happening."
Follow Reinhardt Krause on Twitter @reinhardtk_tech for updates on artificial intelligence, cybersecurity and cloud computing.
