Arista Networks, Cisco Systems, Juniper Networks, Nvidia and Celestica face competition in the emerging artificial intelligence computer networking market from hot startup Nexthop AI. The new competition comes as Arista stock and Nvidia stock underperform in 2025.
Anshul Sadana, the former chief operating officer of Arista, founded Nexthop AI. Sadana unexpectedly left Arista in May 2024. Nexthop AI is targeting large scale internet data center owners called "hyperscalers," said Goldman Sachs analyst Michael Ng in a report.
Those include cloud computing giants as well as Facebook-parent Meta Plaforms.
"Nexthop AI builds custom networking solutions for hyperscaler AI workloads," Ng said. "Solutions are customized across hardware, software, and optics for hyperscalers' specific applications. Nexthop AI solutions are pre-integrated with their customer's preferred networking operating systems and use the latest merchant silicon chips, such as Broadcom."
Broadcom is one of Nvidia's chief rivals in the AI chip market.
On the stock market today, both Arista and Nvidia fell. Arista stock retreated 3.3% to close at 78.96. Nvidia stock dipped 2.1% to 111.43.
Nexthop AI has garnered $110 million in funding, led by Lightspeed Venture Partners, with additional investors including Kleiner Perkins, WestBridge Capital, Battery Ventures and Emergent Ventures.
Arista Stock: Nexthop Grabs Employees
Ng added that "Six members of Nexthop's eight person leadership team are former Arista employees, of which four joined directly from Arista. Former Arista Chief Financial Officer Ita Brennan is on the Nexthop AI board of directors."
Asked for comment on Nexthop AI's emergence, Arista said it was in a quiet period from a regulatory view.
Meta and Microsoft have been Arista's biggest customers.
Cloud giants led by Amazon Web Services, part of Amazon.com, are upgrading data centers for artificial intelligence workloads.
Tech giants quickly focused on building new data centers with clusters of AI computer servers. The "back-end" clusters may scale up to 100,000 servers or more.
Servers typically use Nvidia AI chips but the cloud giants are also developing their own custom accelerators.
"Nexthop AI utilizes a joint development manufacturer model to address the build v. buy concerns of hyperscalers," Ng said. "JDMs are a hybrid of original equipment manufacturers like Arista or Cisco and original device manufacturers like Celestica or Accton, with both the JDM and customer sharing certain parts of the design and manufacturing."
In a recent IBD interview, Arista Chief Executive Jayshree Ullal discussed its Ethernet networking business.
Arista stock has retreated 26% in 2025 while Nvidia stock has dropped 15% as AI stocks sell off. Cisco stock has gained 4%. HPE has agreed to buy Juniper in a $14 billion deal but regulators oppose the merger.
Nvidia Stock: DeepSeek Impact
Further, China startup DeepSeek has roiled AI stocks, including Nvidia.
DeepSeek came out of nowhere to release a powerful AI training model developed with much less computing power. AI stocks sold off amid new questions over the outlook for capital spending on artificial intelligence infrastructure.
Despite the emergence of DeepSeek, cloud computing titans and tech giants plan big increases in artificial-related capital spending in 2025 amid the race to human-like artificial general intelligence (AGI).
On the other hand, economist Ed Yardeni in a note said Wednesday's big sell-off in AI stocks may have been tied to Microsoft walking away from data center projects after cutting back support for new OpenAI training models.
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