AI Infrastructure Is Upgrading Hardware and Networking TAM

Overview

This report updates the hardware and networking industry model, covering product markets such as servers, storage, switches, wireless LAN, data center interconnect, routers, broadband access, and active cable, and provides TAM and growth forecasts for 2026 through 2030. The core conclusion is that AI compute and data center networking investments continue to support upward revisions to related market forecasts; server, data center Ethernet switch, DCI, and AEC growth is clearly stronger than traditional hardware and networking end markets.

Core views

The report believes that AI infrastructure-related product groups are in the strongest demand cycle: server CAGR over 2026-2030 is expected at +31%, data center Ethernet switches at +29%, DCI at +26%, AEC at +28%, and AI data center switches at +40%. Compared with the March 2026 forecast, server market estimates for 2026/2027/2028 were revised up by +9%/+12%/+20%, data center Ethernet switches by +2%/+12%/+7%, DCI by +15%/+22%/+28%, and AEC by +5%/+19%/+5%. Traditional markets such as external storage, campus switches, WLAN, routers, and broadband access remain mostly in low- to mid-single-digit or mid- to high-single-digit growth.

Analysis framework

The report applies a top-down TAM forecast combined with sub-market decomposition, analyzing by product category, deployment type, customer vertical, technology cadence, and supplier share, and compares the revisions in 2026-2028 forecasts versus March 2026 and June 2025 versions.

Methodology notes

• industry_modelTAM forecast and market share analysis

  Decomposes industry growth by product market, customer type, technology platform, and supplier share

  The report evaluates growth quality and competitive dynamics across hardware and networking submarkets through TAM, year-over-year growth, 2026-2030 CAGR, forecast revision magnitude, and changes in supplier shares.

• growth_driverAI infrastructure demand mapping

  Maps AI compute cluster buildout to demand for servers, switches, DCI, and AEC

  The report treats AI servers, Ethernet data center switching, pluggable optics, AI data center interconnect, and active cables as key beneficiaries of AI infrastructure investment.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Servers and AI servers

  Core beneficiaries in AI compute infrastructure

  Strengths

  Large TAM, strong year-over-year growth in 2026, and AI servers with a higher long-term CAGR than the overall server market.

  Weaknesses

  Supply chain and customer concentration are relatively high, with part of growth dependent on capex pacing by large cloud providers.

  Comparison

  Significantly faster than traditional storage, WLAN, campus switching, and router markets.

  Risks

  AI capex slowdown, GPU/system supply bottlenecks, and volatility in customer purchasing cadence.

• Data center Ethernet switches and AI data center switches

  Direct beneficiaries of high-speed interconnect demand for AI clusters

  Strengths

  The 1.6T and 3.2T upgrade cycle provides long-term incremental demand, and the Ethernet substitution trend strengthens market expansion.

  Weaknesses

  Rapid technology turnover can lead to large supplier share shifts.

  Comparison

  Compared with InfiniBand, Ethernet backend and frontend growth expectations are stronger.

  Risks

  Technology roadmaps, pricing competition, and cloud providers' vertical integration or concentrated procurement risk.

• DCI and pluggable optics

  Critical network layer connecting distributed AI data centers

  Strengths

  Growth is supported by distributed deployment of data centers under power constraints, with strong gains in ZR/ZR+/Coherent Lite Optics and switching systems.

  Weaknesses

  Some legacy optical systems are growing more slowly, and historical methodology changes affect comparability.

  Comparison

  DCI growth is higher than most traditional networking markets.

  Risks

  Optics supply, standards evolution, customer deployment timing, and capex cycles.

• AEC active cables

  Supporting high-speed internal connectivity demand for AI servers and clusters

  Strengths

  Year-over-year growth in 2026 is expected to be more than double, with sustained double-digit long-term growth and Credo holding leading share.

  Weaknesses

  The absolute market size is smaller than servers and switches, and supplier concentration is high.

  Comparison

  Growth is faster than traditional hardware markets, but TAM is smaller.

  Risks

  Intensifying competition, alternative interconnect options, customer concentration, and pricing pressure.

• Traditional networking and storage markets

  Mature IT infrastructure assets

  Strengths

  Campus switches, WLAN, routers, and broadband access still have steady low- to mid-single-digit or mid-high single-digit growth.

  Weaknesses

  Growth is clearly lower than AI-related markets, with part of enterprise and legacy deployment segments likely to decline.

  Comparison

  External storage CAGR is only +4% for 2026-2030, WLAN about +4%, and routers about +7%.

  Risks

  Enterprise IT budget moderation, cloud migration substitution, and price competition in mature markets.

Key data

• Server market size2026E $473bn; 2026-2030E CAGR +31%2026 up +67% from 2025's $284bn, and revised up +9% versus the March 2026 forecast.
• AI server market size2026E $356bn; 2026-2030E CAGR +37%AI servers account for about 75% of the total server market, with hyperscalers, enterprise, and Rest of Cloud as key demand sources.
• Data Center Ethernet switches2026E $46bn; 2026-2030E CAGR +29%Near-term volume growth is driven by 800G and 1.6T, with 3.2T becoming a more important driver later.
• AI data center switches2026E $24bn; 2026-2030E CAGR +40%Ethernet backend CAGR is +45%, Ethernet frontend CAGR is +55%, and InfiniBand switches are expected to have a CAGR of -1%.
• DCI market2026E $13bn; 2026-2030E CAGR +26%Growth comes from AI data center interconnect demand and migration from Optical Systems toward Switches/Routers with Pluggable Optics.
• AEC market2026E $1.4bn; 2026-2030E CAGR +28%2026 up +121% from 2025's $0.6bn, with Credo share around 82% in 1Q26.
• External storage market2026E $82bn; 2026-2030E CAGR +4%Largely unchanged versus the March 2026 forecast, with higher growth in Private Cloud/Hybrid Cloud and expected softness in enterprise.

Impact & implications

At the industry level, capex is concentrating on AI compute, data center networking, and interconnect, driving significant TAM expansion for servers, switching chips/systems, optical interconnect, and high-speed cables. On competitive dynamics, Nvidia remains the market leader in AI servers and AI data center switches, but increasing Ethernet adoption is benefiting networking and contract manufacturing/system vendors such as Arista, Celestica, Cisco, and HPE/Juniper; in DCI, rising shares of pluggable optics and switching/routing platforms may reshape growth structures of incumbent optical system vendors.

Risks

• If AI infrastructure capex comes in below expectations, server, data center switching, DCI, and AEC market forecasts could be revised lower.
• Procurement pacing is highly concentrated among large cloud providers, which can amplify quarterly order and market share volatility.
• Technology pathways for Ethernet, InfiniBand, optical interconnect, and active cables are still evolving, and changes in standards or architectures could affect supplier shares.
• Growth in traditional hardware and networking markets is slower, and enterprise IT budget constraints, cloud migration, and price competition could pressure revenue performance.
• Some market forecast definitions have been adjusted, for example a DCI data restatement makes direct comparability with pre-March 2026 forecasts imperfect.

What to watch

• Whether forecasts for servers, data center Ethernet switches, DCI, and AEC are further revised upward in 2026-2028.
• Changes in AI server share of the total server market and share shifts for Nvidia, Dell, Super Micro, and HPE.
• The scaling pace of 1.6T and 3.2T data center Ethernet switches, and whether 800G declines as expected after 2027.
• The penetration speed of Ethernet versus InfiniBand in the AI data center switch market.
• Share migration in DCI from Optical Systems to pluggable optics, Switching Systems, and Routing Systems.
• Whether high Credo share in the AEC market is maintained and how prices and shares evolve as competitors enter.