① Hon Hai has won the NVLink switch manufacturing order, which may be equivalent to seven times the shipment volume of the GB200 server. ② Known as the "magic weapon to enhance computing power", the switch is a key part of the AI server network. ③ Several A-share listed companies have made layouts in this regard.
The wave of artificial intelligence has driven demand in various fields. Following optical modules and advanced packaging, Nvidia has released another large order for switch chips.
According to supply chain sources, Nvidia has recently reached a large exclusive order cooperation with Foxconn Industrial Internet regarding NVLink switches, with the order amount equal to seven times the shipment volume of GB200 servers (calculated based on seven NVLink switches required for one server cabinet).
Morgan Stanley estimated in their AI supply chain industry report that by 2025, Nvidia will ship 20,000 GB200 DGX NVL72 racks and 10,000 MGX NVL36 server racks.
NVLink switches are Nvidia's exclusive technology for GB200 AI servers. Previously, Foxconn had already secured a large share of Nvidia's GB200 AI server orders, with reports pointing out that the latest NVLink switch has a much higher gross margin than server assembly.
In fact, switches are known as the "magic weapon" for improving computing power. Like highway hubs allow vehicles to change lanes, switches allow data to flow rapidly between CPUs, GPUs, and accelerators, enabling them to quickly respond to high-performance computing tasks. This has made them an important component in today's era of exploding AI-driven computing demand.
Previously, as attention on AI infrastructure shifted to network communications, the stock price of communication chip leader Broadcom reached a historical high. The company also clearly stated that Ethernet architecture will become the main networking method for large-scale AI clusters. Switches are a key component of Ethernet architecture.
Therefore, the source of the growth in switch orders lies in the continuous construction of large-scale AI clusters and the increase in the number of servers, which are essentially due to the continuous growth in computing demand. According to IDC's research analysis, the global server market will maintain a growth rate of 8-11% in the 2024-2027 period, and is expected to reach a market size of 178 billion US dollars by 2027.
Returning to a domestic perspective, the implementation of the "East to West" project, coupled with the surge in demand for large-scale data processing and storage, is also driving the rising procurement demand for China's server market. According to IDC's predictions, by 2027, the size of the Chinese AI server market is expected to reach 16.4 billion US dollars (approximately RMB 118.992 billion).
"Ke Chuang Ban Daily" found several A-share listed companies that provide high-performance switch assembly services tailored for AI servers:
Foxconn Industrial Internet's 800G switch has undergone new product introduction and is expected to contribute to the company's revenue. The company is a major global server brand partner and has continued to lead in terms of cloud computing server shipments.
Feilihua Kechuangda has achieved independent R&D and innovation achievements in the field of mid-to-high-end data center switches, and has currently achieved mass production and delivery of mid-to-high-end switches such as 25G/100G/400G.
Gongjin Electronics' products cover park switches, SMB switches, and data center switches. At present, the company's 800G data center switch has begun delivery.
Ruijie Networks has launched an 800G switch product technology solution to help customers achieve intelligent network construction and meet the scale application needs of AI high-performance computing clusters.
Wus Printed Circuit has continued to lay out in the high-end data center switch market, and its products for Pre800G have been mass-produced. The products for 800G have also achieved small batch delivery.
From an investment perspective, Northeast Securities has outlined four investment logics for the switch industry chain:
1) Switch chips: long cycle, high barriers to entry; rise of domestic substitutions. The Ethernet switch chip market is dominated by major players such as Broadcom. Shengke Communication has become the first domestic manufacturer. End customers are driving the localization of the supply chain, and Shengke Communication is deeply benefiting from this.
2) Overseas mapping: the AI construction boom is surging, and domestic manufacturers are expected to replicate Arista's footsteps. As a data center switch that serves as the foundation of AI infrastructure, the 800GbE switch penetration rate is expected to cause related manufacturers' prices and shipments to rise in unison.
3) WiFi-7 commercialization: the WiFi-7 standard is expected to officially land in 24Q1, and WiFi-7's first year may come. Upstream chip and module manufacturers are expected to be the first to benefit, while mainland companies focus on terminal application sides.
4) White box: The trend of White box switch is obvious, and it has become the mainstream choice for datacenter. Overseas white-label switch manufacturers such as Arista are grabbing market share from traditional brands such as Cisco. The OS+ white box path brings higher gross margin. Domestic manufacturers are expected to replicate the Arista path and further increase market share by relying on white box switches.