The Internet in the AI Era: Where Does Demand Come From and Where Will Innovation Head?

The network is a key component in the era of AI large models. In the era of large models, we have already seen accelerated iterations of network devices such as optical modules and switches, with an explosive demand. However, the market has a limited understanding of why graphics cards need to be paired with a large number of optical modules, and why communication has become a pain point for large models. This article will explore the principles behind why the network has become a new "C position" in the AI era, and discuss future innovations on the network side and the investment opportunities behind the latest industry changes.

Network demand mainly comes from three aspects:

1. The increasingly large model size requires multi-server clusters to solve training issues.

2. The network is more used to synchronize the model parameters between graphics cards, which places higher demands on network density and capacity.

3. Large model training lasts for several months, the cost of network failures is extremely high, and the stability requirements are increased.

Network innovation is mainly reflected in three directions:

1. Communication medium iteration: While optical modules pursue higher speeds, they also reduce costs through methods such as LPO, LRO, and silicon photonics. Copper cables dominate connections within cabinets. New technologies like Chiplet and Wafer-scaling accelerate the exploration of silicon-based interconnection limits.

2. Network Protocol Competition: Communication protocols within nodes are bound to graphics cards, such as NVIDIA NV-LINK and AMD Infinity Fabric. The main competition between nodes is between IB and Ethernet.

3. Changes in Network Architecture: The leaf-spine architecture is relatively costly in ultra-large clusters, and new architectures such as Dragonfly and rail-only architectures are expected to become the next generation evolution direction for ultra-large clusters.

Investment Advice:

Core links of communication systems: Zhongji Xuchuang, Xinyi Sheng, Tianfu Communication, Hudian Co., Ltd.

Innovation segments of the communication system: Yangtze Optical Fiber and Cable Joint Stock Limited Company, Zhongtian Technology, Hengtong Optic-Electric, and Shengke Communication.

Risk Warning: AI demand is below expectations, scaling laws have failed, and industry competition is intensifying.