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Nvidia Faces Competition from Ultra Ethernet Consortium

Strategic Insights

— 2 min read

Nine major technology companies, including Arista Networks, Cisco Systems, and Intel, have formed the Ultra Ethernet Consortium to develop a new computer networking standard for internet data centers. This standard will compete with Nvidia's InfiniBand technology, which the chipmaker acquired in 2020 through its $6.9 billion purchase of Mellanox. The consortium's next-generation Ethernet devices are expected to be available in 2024, and the industry's largest players are already showing their support for the standard.

Key Takeaways:

  • The Ultra Ethernet Consortium, formed by 9 major technology companies, aims to develop a new computer networking standard for internet data centers.
  • Nvidia's InfiniBand technology, acquired in 2020, will face competition from the consortium's next-generation Ethernet devices.
  • The consortium's products are expected to be available in 2024, with UBS analyst David Vogt predicting that networking companies will not recognize material revenue until mid-2024.
  • Nvidia is the largest seller of InfiniBand chips and also produces Ethernet network switches, but is not a member of the Ultra Ethernet Consortium.
  • NVDA stock has more than tripled in value this year, driven by increased demand for AI chips and software used in data centers.
  • The Ultra Ethernet Consortium aims to target AI networks that connect data centers to broader wide area networks, creating a new market for its products.
  • Arista Networks and Cisco Systems also sell computer networking switches and are members of the Ultra Ethernet Consortium.
  • Nvidia's dominance in AI chips has created synergy with Infiniband sales, but the new consortium aims to disrupt this market.

Statistics:

  • NVDA stock has soared 218% this year, driven by increased demand for AI chips and software used in data centers.
  • The Ultra Ethernet Consortium's products are expected to be available in 2024, with revenue recognitionpredicted to occur in mid-2024.
  • UBS analyst David Vogt predicts that networking companies will not recognize material revenue until mid-2024.
  • Nvidia is the largest seller of InfiniBand chips, with a market share that is expected to be disrupted by the Ultra Ethernet Consortium.
  • NVDA stock price fell 3.3% to close at 455.20 on Thursday, while ANET stock dipped 2.8% to 171.41 and CSCO stock edged down a fraction to 52.37.

Sources:

  • UBS analyst David Vogt
  • Goldman Sachs report quoting market research firm 650 Group
  • IBD's curated list of leading stocks that stand out on technical and fundamental metrics
  • Quote from Reinhardt Krause on Twitter regarding Nvidia's acquisition of Mellanox in April 2020.

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