By Martin Baccardax

Nvidia, the world's biggest chip maker, is often described as the "pick and shovel" provider for the new technology's massive investment story. Earnings from AMD, Arista Networks, and Astera Labs suggests that there are subtle ways to play the trade.

Much like the Gold Rush of the mid-19th century, where hundreds of prospectors went bust but the sellers of gold digging equipment made a fortune, chip makers are expected to capitalize on the AI investment regardless of who emerges victorious.

That thesis seems less true now that it did even a few quarters ago, however, as Nvidia tightens its grip on the high-end chip market while rivals like Advance Micro Devices struggle to narrow the gap.

Nvidia's market value topped $4 trillion for the first time last month, and estimates suggest it commands 90%-plus share of the global market for AI accelerators. Research group market.us says the total value of that market is likely to reach $240 billion over the next decade.

AMD, meanwhile, has a market value of $283 billion, and battles with Intel for the remaining 10% sliver of the AI accelerator pie.

AMD's second-quarter earnings, published last night, included tepid revenue growth of 14% in its data center unit, which houses the AI chips it hopes will challenge Nvidia's overall market dominance. CEO Lisa Su said part of that disappointment was tied to U.S. restrictions on high-tech exports to China.

Investors were also looking for a bullish guide on how it will capture some of the $340 billion in capital spending plans unveiled by Microsoft, Amazon, Facebook parent Meta Platforms, and Google parent Alphabet over the past few weeks.

AMD said it sees current-quarter revenue in the region of $8.7 billion, topping Wall Street's $8.4 billion forecast, with Su adding that she sees a "clear path to scaling our AI business to tens of billions of dollars in annual revenue."

Shares in the group, which have outpaced both Nvidia and the Philadelphia Semiconductor Index benchmark so far this year, were last marked 6.5% lower in early Wednesday trading.

The AI "pick and shovel" trade, however, is evolving well beyond the pure-play chip makers, and investors are increasingly focused on companies that provide different technologies to the data center function.

Arista Networks, based in Santa Clara, California, makes network gear that connects the servers and data storage systems inside a data center to communicate with each other and the outside world. Their switches and routers allow exceedingly complex traffic to move at high speeds, and without bottlenecks, boosting overall data center performance.

The group, which gets the bulk of its sales from Meta and Microsoft, posted better-than-expected second-quarter earnings late Tuesday, with revenue rising 30% from a year ago to $2.21 billion. Gross margins improved by 150 basis points to 63.7%.

"The data center switching opportunity is set to exceed Arista Network's prior estimates of $70 billion by 2029 as custom AI infrastructure expands," said Melius Research analyst Ben Reitzes.

"Networking content is set to grow faster than the market estimates even in our opinion given the importance of speed and reliability," added Reitzes, who carries a 'buy' rating with a $160 price target on the stock.

Arista stock was up 12% higher at around $132 in early Wednesday trading.

Digging deeper in the so-called Campus, a term tech pros used to describe stand-alone AI supercomputers, is the networking gear made by Astera Labs.

Located just a few miles south of Arista Networks in San Jose, the group makes cables, controllers and switches that help individual chips and server racks communicate.

Astera's second-quarter revenue rose 150% from a year ago to $192 million, while its gross margin was pegged at an impressive 76%.

"We believe the plethora of new product ramps should continue to drive a solid growth profile through the remainder of the year and into 2026," said JPMorgan analyst Harlan Sur in a note published Wednesday.

Sur raised his price target on the group by $80, taking it to $180 a share, while keeping an 'overweight' rating in place.

Astera shares were marked 20% higher in early trading and changing hands at $162.60 each, a move that would add around $4.5 billion to its $22.4 billion market value.

Write to Martin Baccardax at martin.baccardax@barrons.com

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August 06, 2025 08:58 ET (12:58 GMT)

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