The router and switch industry is set to be the next industry segment to emerge from the recent doldrums that plagued the segment due to carrier inventory surplus issues.
Dell’Oro said in its recent forecast that the demand for high-end routers and aggregation switches is projected to rise at a five-year compounded annual growth rate (CAGR) of 4%. Cumulative router revenue for the five-year forecast period is $73 billion.
The research firm noted that the increase in demand for routing equipment is expected to be driven by improving conditions across multiple facets of the networking industry.
“We slightly raised our outlook for the routing market due to improving market conditions,” stated Jimmy Yu, VP at Dell’Oro Group. “From our perspective, the inventory correction that pulled sales of high-end routers down by 18 percent in 2024 is behind us.”
New bandwidth demands
As economic conditions improve and bandwidth demands increase, there are new opportunities for routers.
Core Routers are forecast to have the highest five-year CAGR, following a steep drop in 2024.
Emerging Network as a Service (NaaS) for enterprise services could be a key driver of router bandwidth growth.
Router demand is projected to increase across all the major regions, with North America posting the highest growth rate, considering the number of hyperscale companies in the area.
Consider service providers like AT&T and Lumen that are ramping up their network capabilities to support emerging service sets.
AT&T offers its Network on Demand NaaS service, which provides on-demand networking services for businesses. AT&T’s NaaS includes SD-WAN, VPN, and other network management services.
Likewise, Lumen recently announced it had surpassed 1,000 customers on its NaaS platform. Its customers can connect applications across offices, hyperscalers, and data centers using Internet On-Demand for public connectivity, Ethernet On-Demand for layer two private connectivity, and IP VPN On-Demand for layer three private connectivity.
The cloud factor
A significant factor in the router growth race will be cloud provider services.
Dell’Oro said that cloud provider demand is projected to grow at a higher rate than that of traditional service providers. Cloud provider direct purchases of high-end routers are forecast to grow at a double-digit CAGR.
Fellow research firm Synergy Research revealed that in the second quarter, enterprise spending on cloud infrastructure services increased to almost $99 billion worldwide, up over $20 billion from the second quarter of 2024.
In the second quarter of 2025, Amazon Web Services (AWS), Microsoft, and Google Cloud all indicated they would increase capital spending to accommodate the demand for cloud infrastructure and the escalating AI race.
Leading the charge was AWS, whose capex figures are projected to exceed $118 billion for the year. Alphabet, Google's parent company, raised its 2025 CapEx guidance to $85 billion while Microsoft’s "intelligent cloud" segment, including Azure, saw record CapEx of $24.2 billion in the fourth quarter of fiscal 2025. Microsoft is projected to raise capex to $30 billion.
Yu said that the cloud provider’s capital spending patterns could drive new bandwidth needs that could require additional high-end routers and aggregation switches.
“Cloud providers are aggressively investing in AI computing clusters and developing agentic AI applications,” he said. “So, the question we are all asking ourselves is when will the new bandwidth be needed and how much?”
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