Who's actually winning in AI networking?

Every year, around this time, we adjust and pivot our portfolio towards the next 12-18 months…yes, well in advance. This proactive strategy has enabled us to deliver market-leading returns which are posted here….an average annual return of +141% at a CAGR of +43%.

We are more than 60% allocated to the AI theme with a strong leaning towards GPUs, ASICs, AI networking and AI energy. In spite of the recent market chaos, we are still sleeping well at night…well ahead of all the indexes.

Today, we discuss the AI networking landscape. We identify the current market leaders in each layer of the stack and more importantly:

1. The company at most risk of being sidelined soon.

2. Who is likely to be the next-gen winner.

This is a sector currently undergoing rapid transformation…new technologies emerging while others are becoming obsolete: 800G giving way to 1.6T optical, PCIe 5 getting upgraded to PCIe 6, DSP-based modules under pressure from linear pluggable optics, pluggable modules facing threats from co-packaged optics. As investors we need to sharpen our pencils on what we want to own and when.

If you want to follow our portfolio pivot journey…why and how we do it…read our latest post here, including links to our previous writings in this series. There is more work to do on this front…our portfolio is being tweaked in real time…so stay tuned.

Welcome to Beachman AI’s Investing Whispers, where we invest in market-leading stocks and ETFs with Beachman’s proven long-term record and a lower risk approach. Over the past 6 years, our structured investing has delivered an average annual return of +141% at a CAGR of +43%.

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• Beachman’s latest market whispers

• AI interconnect value chain

• Beachman’s plan

• Conclusion

Here is what is top of mind for me these days in early August…

• Margin and leverage can be fatal if not risk managed. We saw this in South Korean markets that have taken major losses on the chin…forever changing many people’s lives for the worse. Here in the US our own “Leo” faced his own major liquidation event right on the eve of his wedding. Hope the reception had good music and food to lighten up the mood.

• At the home front, it is hot and humid as Summer drags on. Thankfully, we have about 50% less mosquitoes this season…I hate those mofos. This month I head to PR for my summer island time…I cannot wait to lounge on my favorite beach again.

• I am now very concerned about the persistent rise of long term interest rates. Warsh and Bessent are playing with fire. This is likely the reason why the shit will hit the fan in late 2026 or early 2027…the bond market will revolt and there will be a larger wash out in stocks. We have not seen nothing yet.

• Meanwhile Q2 earnings reports are mostly positive and in spite of the recent drop in stock prices, stocks remain generally overvalued…many being priced for perfection through 2030.

• Important: We have to keep an eye on election predictions starting in say Sept/Oct. If the GOP is going to lose less or even win, then markets will rally. And vice versa.

As per latest estimates, the combined 2026 hyperscaler capex is running around $750B, up about 70%+ from last year, with 2027 estimates touching $1T. This train is not yet slowing down…although investors are raising more questions now. The mega caps are in a race to capture marketshare. Google’s co-founder, Larry Page, reportedly said "I'm willing to go bankrupt rather than lose this (AI) race."

AI infrastructure boils down to 4 things: compute, memory, power, and networking…the last being the “wires” connecting GPUs to GPUs and CPUs, to memory chips and hard disk storage and to other servers and remote data centers.

AI models are becoming more capable and complex at the same time, needing more GPUs which in turn generates more data traffic between them. The interconnect layer is being forced to scale as fast if not faster than the compute layer sitting on top of it. A cluster of 10,000 GPUs is worthless if they can’t talk to each other fast enough e.g. Meta recently reported that their AI data centers are running at 60-70% utilization…GPUs are sending messages and waiting for responses. Every % loss of utilization equates to loss of revenue, profits and cash flows….loss of shareholder value.

Now, the bottleneck-boys or the chokepoint-chaps fintwit will, on a dime, quote a list of 10 or 17 or 26 AI networking stocks that you must buy asap in order to 2x or 3x your money. But most of these lists are predicated on copy and paste of others’ ideas, a shallow understanding of the technology and an even thinner research effort on where it is heading next.

Over the past week, we did our homework in this space to confirm that we own the stocks with the strongest forward prospects. We also identified what we do not want to own i.e. who’s business is eroding beneath the surface. We then pinpointed the companies that are likely to be the next-gen winners and when.

Let’s dive further into this wonderful world of AI networking…