Nexthop AI Raises $500M at $4.2B Valuation to Build Next-Gen AI Data Center Networks

Lightspeed, Andreessen Back $4.2 Billion AI Data Center Supplier

Nexthop plans to use its new capital to keep hiring and investing in technology, including manufacturing and supply chains for its switches, as demand for AI computing currently far outpaces supply. Nexthop AI, an artificial intelligence infrastructure startup, has raised $500 million in a deal led by Lightspeed Venture Partners, part of a surge of investments in players building out AI capacity. Nexthop, which builds networking hardware and software for AI data centers, hit a $4.2 billion valuation with the new funding round, it plans to announce Tuesday. Andreessen Horowitz joined the funding, alongside all of the company's existing investors, including Altimeter Capital and Kleiner Perkins. Huge amounts of capital are slated to flow into data center construction in the coming years. Tech's biggest data center operators -- Alphabet Inc., Amazon.com Inc., Meta Platforms Inc. and Microsoft Corp. -- are expected to spend about $650 billion in 2026 alone on AI data centers and related projects. Nexthop, founded in 2024 by former Arista Networks Inc. Chief Operating Officer Anshul Sadana, is building systems to facilitate connections within and between data centers. Its tech is designed to require less power while managing more traffic at lower latencies. It's largely codeveloping those networking systems alongside large data center providers to fit their needs, Sadana said. The startup is aiming to compete with companies like Cisco Systems Inc., Arista Networks and Hewlett Packard Enterprise Co. "There is competition, and there will be even more," said Lightspeed investor Guru Chahal. "But the number of teams that over the last 15 years have been able to earn the trust of these hyperscalers comes down to an extraordinarily small number." Alongside the funding, Nexthop is announcing three new switches -- the specialized devices that connect the servers inside data centers and link facilities to one another, enabling the high-speed communication necessary for large chip clusters to train and run AI models. The endeavor is an expensive one. Nexthop has more than 300 employees, almost all engineers, and plans to use its new capital to keep hiring, Sadana said. The startup also manages manufacturing and supply chains for its switches and will keep investing in that technology. At the moment, demand for AI computing is far outpacing supply. But some in the industry worry that if supply eventually meets or outpaces demand, or if data center build-outs are constrained by other factors like power or memory, it could mean widespread trouble for the industry. Sadana knows tech's AI spending can't accelerate at the same rate indefinitely, but he expects the AI infrastructure market to continue to grow significantly. "There will be corrections, which every company should be prepared for, and you shouldn't be reckless with how you think about money in the longer term," he said. "But I'm confident that in a decade from now, the market will be much bigger than it is today."

AI networking startup Nexthop AI raises $500M, launches new switches - SiliconANGLE

AI networking startup Nexthop AI raises $500M, launches new switches Nexthop AI Inc., a startup that develops network equipment for artificial intelligence data centers, has closed a $500 million Series B round. The company stated in its funding announcement today that Lightspeed Venture Partners was the lead investor. Andreessen Horowitz, Altimeter and Nexthop AI's existing backers participated as well. The company is now valued at $4.2 billion. Nexthop AI announced the investment in conjunction with three new additions to its hardware portfolio. The NH-4010, NH-4220 and NH-5010 are switches optimized to process data traffic in AI clusters. All three devices are based on Broadcom Inc. networking chips. The NH-4010 can process 51.2 terabits of traffic per second, while the NH-4220 has twice the capacity. Nexthop AI says that the former chip is up to 20% more power-efficient than comparable products from rivals. That translates into energy savings of up to several dozen megawatts per device. The two switches support a networking technology called RoCEv2. When one graphics card sends data to another, the traffic usually has to pass through a central processing unit. RoCEv2 skips that step to speed up connections. Additionally, it powers a second technology called DCQCN that automatically detects and fixes congested network links. The third switch that Nexthop AI debuted today, the NH-5010, is designed to power AI clusters with a so-called disaggregated spine architecture. That's an alternative to the standard spine-and-leaf design on which many data center networks are based. In a standard data center, servers are attached to switches referred to as leaves. The leaves, in turn, connect to a second set of switches collectively known as the spine. Nexthop AI's disaggregated spine architecture splits this second collection of switches into two "functional tiers." One tier is responsible for processing traffic inside the data center, while the other orchestrates packets flowing to and from other data centers. Nexthop AI offers its switch lineup alongside other network devices. The company makes linear LPOs and LROs, modules that lower the cost of optical networks by reducing the need for digital signal processors. A digital signal processor is a chip that performs tasks such as removing noise from fiber-optic links. Customers can manage Nexthop AI's hardware using an operating system called Nexthop NOS. It's based on SONiC, an open-source network orchestration platform originally developed by Microsoft Corp. Nexthop NOS adds cybersecurity optimizations and an update service that speeds up the process of installing patches. "AI clusters are pushing data center networks to their limits, and networking is now central to overall system performance," said Andreessen Horowitz general partner Raghu Raghuram. "Nexthop is purpose-built for this shift."