Chip makers like Nvidia are far from the only beneficiaries of President Trump’s effort to make the U.S. a leader in artificial intelligence.
The Stargate artificial-intelligence project that Trump announced on Tuesday will ultimately require hundreds of thousands of Nvidia processors across its 20 data centers. To work together, those chips will need to be networked.
That is why news of the $500 billion project lifted data network stocks like Broadcom, Marvell Technology, and Arista Networks by some 7% Wednesday. Nvidia stock rose 4%.
The major share of hardware spending for an AI data center goes for the high-value processors from Nvidia and its rivals. But the number of network devices required rise exponentially with the processor count, so giant data centers like those of Stargate may be spending as much as 20% of their semiconductor dollars on network chips.
As Barron’s reported in December, Nvidia dominates the sale of network gear for AI centers, just as it does for processor sales. The company predicts it will sell billions of dollars worth of Ethernet switching gear in 2025.
Other network vendors are seeing demand from AI computing as well. Analysts flagged several as potential beneficiaries of spending by Stargate’s builders, as well as rival data centers racing to compete with the new project.
Switch maker Arista Networks should benefit, wrote William Blair analyst Sebastien Naji on Wednesday. Arista is a key supplier of Ethernet switches to Oracle, the Stargate partner that will build and operate the project’s centers.
Arista was also seen as a potential beneficiary by analysts at Melius Research, who also cited Broadcom as a possible winner. Broadcom chips are used in Arista’s switches and those of many other network vendors.
Connecting the switches to processors are transceiver devices made by Broadcom and Marvell. The torrents of data flowing through AI networks mean that many of those devices will be linked through fiberoptic cables, so Jefferies analyst George Notter urged investors to also consider the fiber maker Corning, the transmission system maker Ciena, along with the laser device makers Coherent, Lumentum Holdings, and Fabrinet.
All that makes it clear that the AI data-center buildout bodes well for the long-term demand for network gear. That said, AI enthusiasm has vaulted many network stocks to their highest valuations in years.
Arista stock, at $129, now goes for more than 50 times the per-share earnings predicted for either 2024 or 2025, based on the consensus forecasts tallied by FactSet. Morgan Stanley analyst Meta Marshall notes a debate among investors over whether Arista’s growth this year will match the expectations of its fans, of which she is one.
The steep valuation enjoyed by Arista leaves Raymond James analyst Simon Leopold rating it a Hold. He projects 20% sales growth this year, to about $8.4 billion, including $1 billion from AI centers. While buy-side bulls anticipate 25% to 30% revenue growth this year, that seems like a tall order, he says.