AI data center switch forecasts revised upward, with ANET and CLS more favored for positioning ahead of earnings

Overview

This report updates Goldman Sachs' Americas technology hardware networking equipment models, based primarily on 650 Group's latest C1Q26 industry data. The report focuses on AI data center switching, traditional data center switching, DCI, campus enterprise switching, enterprise WLAN, and Wi-Fi 7, and links these industry forecasts to the pre-earnings share-price performance, ratings, target prices, and risks of covered networking companies such as ANET, CLS, CSCO, HPE, and FFIV.

Core views

Goldman Sachs believes that rising complexity in AI data center buildouts will increase incremental demand for networking equipment to support high-performance, low-latency data flows, driving significant expansion in the AI Ethernet switching market. In campus networking, network modernization, data traffic growth, Wi-Fi 7 upgrades, and higher prices for some memory components together support upward revisions to WLAN and enterprise switching forecasts. At the company level, ANET and CLS are seen as well positioned ahead of earnings, HPE benefits from post-Juniper acquisition campus portfolio synergies as well as data center switching and DCI trends, and CSCO remains a leader in enterprise switching and WLAN but is rated Neutral.

Analysis framework

The report uses a combination of top-down industry forecasting and bottom-up company mapping: it first updates 2025-2030 market size, customer verticals, port speeds, and vendor shares using 650 Group data; it then compares each company's market share, historical share-price performance around earnings, valuation multiples, target prices, and key risks; and finally reaches a view on pre-earnings positioning for covered networking equipment companies.

Methodology notes

• Industry forecasting650 Group networking equipment forecast update

  Use third-party industry data to revise the market size of data center switching, WLAN, and enterprise switching.

  The report incorporates 650 Group's C1Q26 data into Goldman Sachs' networking model, focusing on the magnitude of forecast upgrades versus the prior forecast for 2026-2030, as well as changes in customer mix and vendor share.

• Valuation and target priceTarget price multiple method

  Derive 12-month target prices based on NTM+1Y EPS and target P/E multiples.

  ANET's $196 target price implies 36x NTM+1Y EPS, CSCO's $125 implies 25x, HPE's $79 implies 18x, and CLS's $475 implies 28x; the report notes that all of these target prices are unchanged.

• Share-price behavior analysisHistorical earnings-period performance comparison

  Compare average share-price performance in the two weeks before and after earnings, as well as on the earnings day.

  The report uses samples from the past several quarters to compare the average performance of CSCO, ANET, CLS, HPE, and FFIV before earnings, on the earnings day, and after earnings to assess pre-earnings trading setups.

• Goldman Sachs proprietary frameworkGS Factor Profile

  Assess stock characteristics across growth, financial returns, valuation multiples, and composite percentile ranking.

  The growth dimension is based on forward sales, EBITDA, and EPS growth; financial returns are based on ROE, ROCE, and CROCI; the multiple dimension is based on P/E, P/B, EV/EBITDA, EV/FCF, etc.; and the composite percentile combines growth, returns, and lower valuation multiples.

• M&A probability frameworkM&A Rank

  Use a 1-to-3 ranking to measure the probability that a company becomes an acquisition target.

  A rank of 1 indicates a higher acquisition probability, 2 indicates a medium probability, and 3 indicates a lower probability; if the rank is 1 or 2, Goldman Sachs may incorporate an M&A component into the target price.

Asset mapping & comparison

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

• Arista Networks Inc. (ANET)

  A core beneficiary of AI Ethernet data center switching, front-end networking, and DCI switching.

  Strengths

  Goldman Sachs rates it Buy with a $196 target price; the company has over 30% share in the front-end networking market alongside Celestica and holds a leading position in the overall DCI switching market; historically it has shown the strongest average performance in the two weeks before earnings.

  Weaknesses

  Switching-chip supply-chain constraints may limit near-term revenue upside versus guidance; customer concentration is high, with META and MSFT accounting for about 16% and 26% of 2025 revenue, respectively.

  Comparison

  ANET is up about 36% so far in C2Q26, lagging CSCO, HPE, and FFIV, but Goldman Sachs believes it and CLS are better positioned ahead of earnings.

  Risks

  Slower cloud capex, customer concentration, competition from Cisco and Huawei/H3C, white-box switching solutions, margin pressure from enterprise sales investment, and pricing pressure from hardware commoditization.

• Celestica Inc. (CLS)

  An important supply-chain beneficiary in AI Ethernet front-end, back-end, and 800G switching markets.

  Strengths

  Goldman Sachs rates it Buy with a $475 target price; Celestica and Arista lead market share in the front-end AI Ethernet networking market and continue to lead in the 800G switching market.

  Weaknesses

  It may also be affected by switching-chip supply constraints in the short term; high customer concentration may introduce revenue volatility.

  Comparison

  CLS is up about 26% so far in C2Q26, relatively weak versus covered networking peers, but Goldman Sachs believes AI Ethernet demand is not disappearing and short-term supply constraints do not alter medium- to long-term growth.

  Risks

  Competition from branded data center equipment OEMs and ODMs, AI server competition reducing margins, lower data center investment demand, weaker ability to win high-margin design projects, and volatility in ATS end-market demand.

• Hewlett Packard Enterprise Co. (HPE)

  Benefiting from campus networking, WLAN, DCI routing, and synergies from the Juniper acquisition.

  Strengths

  Goldman Sachs rates it Buy with a $79 target price; the report believes that within three quarters after the Juniper acquisition, HPE's WLAN and campus switching share remains stable, and its F2027 networking revenue growth outlook still has upside.

  Weaknesses

  If customer attrition occurs during Juniper integration, share may be affected; the hardware business is sensitive to enterprise IT spending and data center capex.

  Comparison

  HPE is up about 88% so far in C2Q26, standing out among covered companies; historically it has had strong average performance on earnings day, but weaker average performance before and after earnings.

  Risks

  Enterprise IT spending and data center capex below expectations, competition from white-box vendors, Juniper integration risk, rising component costs, activist investor actions, storage share gains below expectations, and lower-than-expected demand for enterprise and sovereign AI data center infrastructure.

• Cisco Systems Inc. (CSCO)

  A major incumbent in enterprise switching, enterprise WLAN, and DCI routing markets.

  Strengths

  Goldman Sachs rates it Neutral with a $125 target price; Cisco continues to dominate the enterprise switching market, has about 36% share in the enterprise WLAN market, and about 39% revenue share in the DCI routing market; over the past three quarters it has gained about 12 percentage points of share in the front-end AI Ethernet networking market.

  Weaknesses

  Changes in cloud customer mix, hardware commoditization, and competition may compress margins; the Neutral rating indicates more limited upside than Buy-rated names.

  Comparison

  CSCO is up about 51% so far in C2Q26, outperforming ANET and CLS; however, Goldman Sachs places more emphasis on ANET and CLS for pre-earnings positioning.

  Risks

  Competition from Huawei, H3C, and white-box solutions, margin pressure from a higher cloud customer mix, rising supply-chain costs, hardware pricing pressure, and dilutive acquisitions.

• F5 Inc. (FFIV)

  Used as an earnings and valuation comparison sample within Goldman Sachs' networking coverage.

  Strengths

  Disclosed as Neutral-rated, with shares up about 41% so far in C2Q26.

  Weaknesses

  The report excerpt provides fewer company-specific drivers, and it is used more for peer share-price and valuation comparisons.

  Comparison

  Quarter-to-date performance is stronger than ANET and CLS, but weaker than CSCO and HPE.

  Risks

  The report does not elaborate in detail on FFIV-specific risks; key risks remain related to networking equipment demand, valuation, and earnings-period volatility.

Key data

• AI Ethernet data center switching market sizeAbout $8.1bn in 2025, about $88.9bn in 2030, with a 2025-2030 CAGR of about 61%Within this, hyperscale cloud customers are expected to grow from about $4.9bn to about $52.7bn, Tier 2 Cloud + SP from about $2.6bn to about $28.2bn, and enterprise from about $0.6bn to about $7.9bn.
• Total data center switching spendAbout $31.8bn in 2025 and about $124.5bn in 2030, with a five-year CAGR of about 31%Includes AI Ethernet and traditional data center switching.
• AI data center switching forecast revisionAverage annual upward revision of about 9% for 2026-2030 forecasts650 Group raised its outlook for the AI data center switching market.
• Non-AI Ethernet data center switching forecast revisionAverage upward revision of about 9% for 2026-2030 forecastsThe report states that the market outlook for non-AI Ethernet data center switching was also raised.
• Cloud data center equipment capexAbout $3.2tn in 2030, with a 2025-2030 CAGR of about 33%Forecasts for 2026-2030 cloud data center equipment capex were raised by an average of about 28% versus the 4Q25 forecast.
• Campus WLAN marketExpected to reach about $13.4bn in 2030, with a 2025-2030 CAGR of about 7%The 2026-2030 outlook for the indoor plus cloud WLAN market was raised by an average of about 10%, mainly driven by an average upward revision of about 13% for Wi-Fi 7 forecasts.
• Enterprise switching marketExpected to reach about $28bn in 2030Enterprise switching forecasts were raised by an average of about 3%, with 2026 expected to grow about 7% year over year, consistent with a roughly 7% CAGR for 2025-2030.
• Wi-Fi 7 penetrationAbout 39% of enterprise WLAN revenue in 1Q26, expected to rise to about 60%-70% by 4Q26 to 1Q27Wi-Fi 7 is an important driver of the upward revision to campus WLAN forecasts.
• WLAN vendor shareCisco about 36%, HPE Aruba about 20%, Huawei about 13%, Ubiquiti about 8%Cisco remains the leader in the enterprise indoor plus cloud WLAN market.
• DCI spending growthFive-year CAGR approaching 100% through 2030The report says DCI spending growth is distributed roughly evenly between switching and routing.
• Scale-up switching marketAbout $7bn in 2025 and about $100bn in 2030Ethernet is expected to account for about 20% of industry revenue by 2030.
• Share-price performance so far in C2Q26CLS +26%, ANET +36%, CSCO +51%, HPE +88%, FFIV +41%Goldman Sachs believes the relative underperformance of CLS and ANET may partly reflect supply-chain constraints in switching chips limiting near-term revenue upside.

Impact & implications

The upward revisions to industry forecasts reinforce the importance of networking equipment in the AI infrastructure investment chain. For investors, long-term growth in AI Ethernet switching demand is favorable for ANET and CLS; improvements in DCI and campus portfolio mix benefit HPE; and enterprise switching and WLAN share advantages support CSCO fundamentals, though its valuation and rating are more neutral. In the short term, supply-chain constraints may limit the extent of upward guidance revisions; in the medium to long term, if hyperscale cloud customers and enterprise AI data center buildouts continue, networking equipment demand could extend into 2028/2029.

Risks

• Cloud capex or enterprise IT spending could come in below expectations, weighing on demand for data center and campus networking equipment.
• Supply-chain constraints in switching chips and components may limit near-term revenue upside and raise costs.
• High customer concentration among major clients such as META and MSFT could cause revenue volatility.
• Competition from Cisco, Huawei, H3C, white-box solutions, OEMs, and ODMs could pressure market share and pricing.
• Networking hardware commoditization could bring broader pricing pressure and margin decline.
• If HPE's integration of Juniper results in customer attrition, campus networking synergies could weaken.
• If demand for AI servers and AI data center infrastructure falls short of expectations, the medium- to long-term growth thesis for CLS, ANET, and HPE would weaken.
• If rising prices for memory and other components cannot be passed through, gross margins for enterprise switching and campus equipment could be squeezed.

What to watch

• C2Q26 guidance and order commentary from ANET, CLS, CSCO, HPE, and FFIV.
• The pace of hyperscale cloud customer procurement of AI Ethernet switching, especially the durability of demand into 2028/2029.
• Whether switching-chip supply-chain constraints ease and how they affect revenue recognition.
• Whether Wi-Fi 7's share of enterprise WLAN revenue rises to 60%-70% as expected.
• The stability of HPE's WLAN and campus switching share after integrating Juniper.
• Whether DCI switching and routing spending maintains a five-year CAGR close to 100%.
• Whether cloud data center equipment capex forecasts continue to be revised upward or begin to slow.
• Cisco's share changes in AI front-end networking, enterprise switching, and WLAN.