AI Networking and Optics: NVLink, Ethernet, CPO — 2026-10-26

Top developments

Arista Challenges Nvidia’s InfiniBand Grip with Open Ethernet

Arista Networks is gaining significant traction in AI infrastructure by positioning itself as the leading alternative to Nvidia’s proprietary InfiniBand. By utilizing Broadcom’s Ethernet silicon, Arista offers an open fabric that is increasingly preferred by hyperscalers seeking to avoid vendor lock-in. The company reported strong Q2 revenue growth of 37.69%, exceeding $3 billion, and has raised its 2026 revenue guidance to $12.60 billion, with at least $3.50 billion attributed to AI-related business. This shift underscores a broader market trend where Ethernet is becoming the dominant scale-out fabric for AI clusters, eroding InfiniBand's traditional stronghold.

Zhongji Innolight Orders Booked Through 2028 on 1.6T Demand

Chinese optical transceiver giant Zhongji Innolight announced that its order backlog extends into 2028, driven by surging demand for 1.6T optical modules essential for next-generation AI data centers. The company confirmed that production capacity is fully utilized, with major customers securing long-term supply agreements to support the deployment of 1.6T networks. This development highlights the critical bottleneck in the AI supply chain, where high-speed optics are becoming as strategically important as the compute GPUs themselves. Competitor Xinyisheng also reported robust demand, with 1.6T modules continuing to ramp up in volume.

Broadcom and Arista Drive Networking Stock Rally

Networking stocks experienced a significant rally as the market rebounded, with Arista and Ciena climbing 4% while Cisco lagged. This divergence reflects hyperscalers' rapid adoption of open Ethernet solutions over legacy enterprise hardware. Arista’s momentum is fueled by its ability to deliver high-performance AI fabrics using off-the-shelf Broadcom silicon, creating a compelling cost-performance ratio for large-scale cluster deployments.

Local view

In China, media outlets like Sohu and Sina highlight the "order boom" for optical module manufacturers, framing 1.6T transceivers as the "new oil" of AI infrastructure. Reports indicate that while assembly capacity is not the primary constraint, upstream chip and packaging capabilities remain the critical bottleneck for the industry. Analysts note that Chinese firms like Zhongji Innolight and Tianfu Communication are benefiting from global AI build-outs, though they face ongoing geopolitical scrutiny regarding supply chain dependencies.

Context & numbers

• Arista Revenue: Q2 2026 revenue reached over $3 billion, up 37.69% year-over-year.
• Guidance: Arista raised its 2026 revenue guidance to $12.60 billion, with $3.50 billion+ from AI.
• Optical Backlog: Zhongji Innolight’s orders extend through 2028.
• Market Shift: Networking stocks like Arista and Ciena rallied 4%, while Cisco remained flat, indicating a clear market preference for AI-focused Ethernet vendors.

On the radar

• 1.6T Ramp: The transition from 800G to 1.6T optical modules is accelerating, with major suppliers like Zhongji Innolight and Xinyisheng confirming full capacity utilization for this generation.
• Ethernet vs. InfiniBand: The battle between open Ethernet (led by Broadcom/Arista) and proprietary InfiniBand (Nvidia) is intensifying, with Ethernet gaining ground in new hyperscaler deployments due to lower costs and flexibility.