In recent years, investments in artificial intelligence (AI) have become a key driver for the growth of high-speed Ethernet switches in data centers. According to recent research from the International Data Corporation (IDC), these developments are fundamentally reshaping the data center infrastructure landscape, with AI workloads being a primary catalyst for the adoption of faster, more efficient Ethernet switches. The insights provided by IDC underscore significant shifts in the networking market, particularly in the enterprise and cloud sectors, as organizations prepare to accommodate the escalating demands of AI and generative AI technologies.

The Surge in High-Speed Ethernet Switch Demand

AI workloads, especially those related to generative AI, have necessitated substantial investments in data center infrastructure, particularly high-speed Ethernet switches. IDC’s research highlights that the Ethernet switch market has experienced significant fluctuations in recent years. While the overall Ethernet switch and router markets both declined in the second quarter of 2024, there are crucial areas showing growth. For example, the data center portion of the Ethernet switch market rose by 8% year over year, a clear sign of the importance of high-speed connectivity in supporting AI workloads.

The most striking growth, however, was in the highest speed Ethernet switches, specifically the 200/400 GbE models, where revenues more than doubled, increasing by 104% from Q2 2023 to Q2 2024. This surge is attributed to the growing adoption of AI workloads, which demand high-performance networking capabilities. Hyperscale cloud providers, in particular, are building up their data center capacities with high-speed Ethernet switches to handle the demands of generative AI applications, a trend that is expected to continue driving market growth. This shift illustrates how cloud infrastructure is evolving in response to AI’s increasing computational and bandwidth requirements.

AI as a Major Growth Driver in Data Center Networking

AI, and more specifically generative AI, is now a critical force in the evolution of data center Ethernet switching. Brandon Butler, IDC senior research manager, has pointed out that investments in faster Ethernet switch speeds are essential to support the expanding workloads associated with AI applications. AI requires rapid data processing, low-latency communication, and high-bandwidth networking to operate efficiently, particularly in large-scale environments like hyperscale data centers.

The numbers back this up: IDC forecasts that the generative AI data center Ethernet switch market, valued at $640 million in 2023, will grow to over $9 billion by 2028. This represents a compound annual growth rate (CAGR) of 70% over five years, a staggering figure that underscores the transformative potential of AI in the data center sector. This growth is not only driven by hyperscale cloud providers but also by enterprises that are increasingly deploying AI capabilities. The demand for faster Ethernet switching is expected to spread across various industries as AI becomes more integrated into enterprise operations, creating a widespread need for enhanced network infrastructure.

The Broader Ethernet Switch Market: Non-AI Trends

While AI is a significant growth driver, the broader data center Ethernet switch market also includes segments that are experiencing different growth patterns. Butler explains that the non-GenAI data center Ethernet switch market is expected to grow at a low single-digit CAGR from 2023 to 2028. This part of the market is diverse, encompassing on-premises traditional data center deployments, enterprise private clouds, and public cloud deployments outside of the generative AI scope.

Traditional on-premises data centers are likely to see a decline as more organizations shift toward cloud and hybrid environments. However, enterprise private clouds are expected to grow moderately as businesses continue to seek control over their infrastructure while benefiting from cloud-like scalability. Public cloud deployments outside of AI are projected to show solid growth, contributing to the overall expansion of the Ethernet switch market. These trends reflect a gradual but ongoing transition from traditional IT infrastructure to more flexible, scalable cloud-based solutions, driven by the need for greater efficiency and cost-effectiveness in data center operations.

The Decline of the Enterprise Router Market and the Rise of SD-WAN

While the Ethernet switch market is being driven by AI and cloud deployments, the enterprise router market is undergoing significant changes. According to IDC, the enterprise router market is transitioning as software-defined wide-area networking (SD-WAN) becomes more prevalent. SD-WAN allows enterprises to move away from traditional hardware-based routers, offering a more flexible, cloud-based solution for managing network traffic. As a result, the enterprise router market is expected to decline over the next five years.

Despite this decline, the SD-WAN market itself is projected to grow at a 9% CAGR, reaching $8.1 billion by 2028. This growth reflects the increasing adoption of SD-WAN as a cost-effective, scalable solution for enterprises looking to optimize their network performance, particularly as more business operations move to the cloud. SD-WAN allows for greater network agility, better performance for cloud-based applications, and enhanced security, making it an attractive option for enterprises seeking to modernize their networking infrastructure.

Service Provider Routing Market: Short-Term Weakness, Long-Term Rebound

The service provider (SP) routing market is also facing challenges, primarily due to weak spending by communications service providers (CSPs). According to Butler, the SP routing market has seen a significant decline this year as CSPs have cut back on network infrastructure investments. This reduction in spending is impacting various SP networking markets, including the SP routing segment. IDC expects this market to remain weak for another quarter or two before rebounding in 2025.

Despite the short-term challenges, the SP routing market is likely to recover as service providers resume their investments in network upgrades. The ongoing demand for faster, more reliable connectivity—driven by the expansion of 5G, edge computing, and AI workloads—will eventually lead to renewed investments in routing infrastructure. As CSPs work to improve their networks to support the increasing data traffic generated by these emerging technologies, the SP routing market is expected to stabilize and return to growth in the medium term.

Conclusion: The Future of Data Center and Network Infrastructure

The data center Ethernet switch market is entering a new era, driven by the rapid expansion of AI workloads and the need for faster, more efficient networking solutions. The surge in demand for 200/400 GbE switches highlights the growing importance of high-speed connectivity in supporting the computational demands of AI applications. As IDC’s research shows, the generative AI data center Ethernet switch market is set to experience explosive growth over the next five years, driven by hyperscale cloud providers and enterprises alike.