Nvidia CEO Jensen Huang demonstrated remarkable foresight in 2010 by directing the company to develop AI-specific chips, well over a decade before the recent surge in AI interest. A subsequent strategic decision in 2020, involving a significant investment in data center networking through an acquisition, has quietly cultivated one of the company's most profitable and rapidly expanding divisions.
Within a short span, Nvidia's networking segment, which facilitates data center connectivity, has ascended to become the company's second-largest revenue generator, surpassed only by its compute division. According to Nvidia's latest earnings report, this segment recorded $11 billion in revenue last quarter, marking an impressive 267% year-over-year growth, and contributed over $31 billion for the entire fiscal year.
Fueled by the escalating demand for AI processing, this division encompasses a suite of advanced technologies. These include NVLink, which enables high-speed communication between GPUs within a data center rack; Nvidia InfiniBand Switches, an integrated in-network computing platform; Spectrum-X, the dedicated Ethernet platform for AI networking; and co-packaged optics switches, among other innovations.
Collectively, Nvidia's networking portfolio provides all the essential technologies required for constructing an "AI factory," which is a data center specifically engineered for the intensive training of artificial intelligence models.
Kevin Cook, a senior equity strategist at Zacks Investment Research, highlighted to TechCrunch the exceptional performance of Nvidia’s networking business, calling it "one of the most impressive new segments from the company." Cook noted, "[Nvidia’s networking business] reports $11 billion for the quarter; that number is greater than Cisco’s networking business, almost as big as the full-year estimates," emphasizing that it achieves in a single quarter what Cisco's business accomplishes in an entire year.
Despite its remarkable achievements, this business segment receives considerably less public attention than the company’s substantially larger chip division. It also lacks the fanfare associated with Nvidia’s gaming business, its original core offering, which is nearly three times smaller in comparison.
The foundation of Nvidia’s networking business traces back to Mellanox, an Israeli networking company established in 1999, which Nvidia acquired in 2020 for $7 billion.
Kevin Deierling, Senior Vice President of Networking at Nvidia, integrated into the company following the Mellanox acquisition. Deierling humorously suggested to TechCrunch that the public's unawareness of Nvidia's networking business might stem from his "bad job of marketing it," though he quickly dismissed that as an unsatisfactory explanation.
"People think of networking as just, ‘I got a printer, and I need to connect to it,’" Deierling explained. He recounted Jensen Huang's profound statement on the first day of the acquisition: "Jensen said this the first day when he acquired us, he said the data center is the new unit of computing. Networking is a lot more than just moving the smaller amounts of data between a compute node, it’s actually a foundation."
Deierling admitted that he initially "didn’t really understand why Huang bought the company when he did," but he now fully grasps the strategy. Integrating a networking business with its GPU division enables Nvidia to offer its chips bundled with the optimal accompanying technology for peak performance.
"When Jensen bought Mellanox in 2020, he saw that was the missing piece to make GPUs a complete package," reiterated Cook, the Zacks analyst.
Deierling further attributed Nvidia networking's success to its strategy of offering technology exclusively as a full-stack solution, rather than as discrete components. He also highlighted that the company distributes its technology through partners, not directly.
"I can’t think of other companies that have [the] full-stack capabilities that we have," Deierling asserted. He emphasized their unique approach: "We are really different. We build the full compute stack, fully integrated stack, and then we go to market through all of our partners."
During CEO Huang’s keynote address on March 16 at the annual Nvidia GTC technology conference, the company unveiled a comprehensive array of updates to its networking system. Key announcements included the launch of the Nvidia Rubin platform, featuring six new chips designed to power an "AI supercomputer." Nvidia also introduced a new Nvidia Inference Context Memory Storage platform and more efficient Nvidia Spectrum-X Ethernet Photonics switches, alongside other product innovations.
Regarding networking, Deierling concluded, "It’s no longer a peripheral to connect the printer, some other slow I/O device. It’s fundamental to the computer. In the old days, we had what was called the back lining inside the computer. Today, the network is the back lining of the AI factory, and it’s super important."
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