The growth prospects for AI data centers have been significantly upgraded, with Goldman Sachs optimistic about Arista and Dell as winners

According to the latest research report released by Goldman Sachs, based on data from 650 Group for the second quarter of 2025, the growth prospects for the AI data center equipment market (including servers and network switches) have been significantly upgraded. The firm has adjusted its investment ratings for several related companies, giving "Buy" ratings to Arista Networks Inc (ANET.US) and Dell (DELL.US). Goldman Sachs expects the AI server market to grow at a compound annual growth rate (CAGR) of 38% from 2024 to 2029, reaching a market size of USD 581 billion (previously forecasted at USD 386 billion). This upgrade is primarily driven by strong demand from hyperscale cloud providers and secondary cloud and service providers. Meanwhile, the traditional server market is expected to slightly contract at a CAGR of -2%. The AI data center switch market is expected to grow at a CAGR of 36%, reaching approximately USD 26 billion by 2029 (previously forecasted at USD 25 billion). Among these, the growth of backend Ethernet switches is particularly strong, with an expected CAGR of 50% (market size of approximately USD 14 billion by 2029), and frontend Ethernet switches at a CAGR of 46% (market size of approximately USD 10 billion by 2029), while Infiniband switches are expected to grow at -1% during the same period (market size of approximately USD 2 billion by 2029). In terms of vertical markets, the 5-year CAGR for AI servers among hyperscale customers is 28%, 66% among secondary cloud and service providers, and 36% in the enterprise market. The CAGR for AI Ethernet data center switches among hyperscale customers is 41%, 55% among secondary cloud and service providers, and 64% in enterprises. Industry Company Ratings Goldman Sachs gives Arista Networks Inc (ANET.US) a "Buy" rating with a target price of USD 155. The firm believes that as a major switch supplier for U.S. hyperscale cloud providers, it will benefit from data growth, digital transformation, and demand for high-bandwidth, low-latency networks. The company's revenue exposure to cloud spending is the highest (with 48% of revenue coming from cloud giant customers in 2024). The company expects to achieve strong double-digit revenue and EPS growth in the coming years. Dell (DELL.US) receives a "Buy" rating with a target price of USD 150. Dell leads in the server and storage market and benefits from AI server demand, a recovery in the PC market, and its diversified product portfolio. Goldman Sachs believes that Dell is likely to maintain or increase its share in key enterprise areas and enhance value through shareholder-friendly capital return plans Goldman Sachs gives Supermicro (SMCI.US) a "Sell" rating with a target price of $27. Although Supermicro has performed well in the high-performance AI server sector, Goldman Sachs believes that the AI server market is becoming commoditized, and increasing competition will suppress profit margins. Its opportunities in the enterprise market will also face challenges from stronger competitors like Dell and Cisco