The AI boom has hit a networking bottleneck that's forcing a fundamental shift in how chips talk to each other. Traditional electrical connections can't keep up with AI's explosive data demands, pushing billions in venture capital toward photonics startups that use light instead of electricity to connect processors. The race is on to replace decades-old networking technology before AI scaling hits a wall.
The new Silicon Valley runs on a different kind of networking - and it's not the LinkedIn variety. As Nvidia and competitors funnel billions into AI data centers, a quiet revolution is happening in the wires and connections that make modern computing possible.
The problem is speed. AI workloads are growing so fast they're breaking traditional networking technology. "The amount of computing power that AI requires now doubles every three months," Lightmatter CEO Nick Harris recently pointed out. That's way faster than Moore's Law ever predicted.
This bottleneck is creating massive opportunities for startups betting on photonics - using light instead of electricity to move data between chips. The results speak for themselves: Lightmatter just hit a $4.4 billion valuation after raising over $500 million from investors like GV and T. Rowe Price. PsiQuantum topped that with a $7 billion valuation and $1 billion funding round from BlackRock and Nvidia's venture arm.
"Optical technology was considered lame, expensive, and marginally useful for 25 years until the AI boom reignited interest," PsiQuantum cofounder Pete Shadbolt told a recent WIRED panel. Now it's having its coming-of-age moment.
The shift makes sense when you look at the numbers. Traditional networking was fine when it was "switching packets of bits," as Creative Strategies CEO Ben Bajarin puts it. "Now, because of AI, it's having to move fairly robust workloads, and that's why you're seeing innovation around speed."
Nvidia saw this coming. The company's $7 billion acquisition of Israeli networking firm Mellanox Technologies in 2020 now looks prescient. They followed up by buying Cumulus Networks to power their Linux-based networking systems. These weren't random purchases - Nvidia bet that GPUs would only reach their potential when clustered together in massive data centers.
But Nvidia isn't the only one making moves. Broadcom, now worth $1.7 trillion, has become the go-to partner for Google, Meta, and OpenAI on custom data center chips. Last month, Reuters reported they're readying a new networking chip called Thor Ultra, designed as the "critical link between an AI system and the rest of the data center."
