Arista Networks Poised for Major Win with Meta's AI Infrastructure Deal

Arista Networks appears likely winner for Meta's mega cluster: Evercore

Yesterday, it was reported Meta is "putting the final touches" on a training cluster featuring more than 100,000 of Nvidia's (NASDAQ:NVDA) H100s, according to The Information. The cluster will train Meta's Llama 4 large language model and will feature $2B worth of chips. The cluster will be networked using Ethernet, since InfiniBand is incapable of handling clusters of this magnitude. This leads Evercore to surmise Arista Networks will likely be providing some of the infrastructure. "Assuming GPU's represent 80% of total spend on this AI cluster, this would imply total cost of around $2.5B, of which 10% is likely spent on infrastructure," said Evercore analyst Amit Daryanani, in a Thursday note. "This could represent a $250M revenue opportunity for Arista, if they won the business." Evercore notes that Meta previously used Arista switches to network a cluster of 24,000 GPUs. "Arista has a strong relationship with Meta, so we think it is likely they are providing the switches infrastructure for this cluster," Daryanani added. If secured, this deal has the potential to add upside to Arista's $750M AI revenue target in calendar year 2025. Evercore maintains an Outperform rating on Arista and a $400 price target.

Arista Networks maintains $400 target on potential Meta deal By Investing.com

On Thursday, Evercore ISI maintained its Outperform rating and $400.00 price target for Arista Networks (NYSE:ANET), a leading provider of cloud networking solutions. The firm's optimism is based on the potential revenue opportunity arising from Meta (NASDAQ:META)'s development of a massive new AI model training cluster. The cluster, which is reported to include over 100,000 GPUs, is expected to be networked via Ethernet, a method preferred over InfiniBand for handling large-scale clusters. Although the provider of the Ethernet switches has not been disclosed, Evercore ISI suggests that Arista Networks is a probable supplier given the company's past involvement with Meta's networking needs. The financial implications for Arista could be significant if they secure the contract. With the GPUs estimated to cost around $2 billion, representing approximately 80% of the total spend on the AI cluster, the overall investment could reach $2.5 billion. Switching infrastructure typically accounts for about 10% of such an investment, indicating a potential $250 million in revenue for Arista Networks if they win the business. Arista Networks has previously provided switches for a Meta cluster containing 24,000 GPUs, reinforcing the assumption that they might be involved in the current project. However, there is competition from Nvidia (NASDAQ:NVDA), which has been aggressive in pricing for its Spectrum-X switches and could influence Meta's decision with preferential GPU allocations. Evercore ISI underscores Arista's robust relationship with Meta and expresses confidence in the company's ability to provide the switching infrastructure for the new cluster. The firm anticipates that this opportunity will contribute to an increase in Arista's revenue expectations for both the calendar years 2024 and 2025. In other recent news, Arista Networks has reported a solid Q2 performance with revenues reaching $1.69 billion, marking a 15.9% increase year-over-year. This growth was primarily driven by the company's services and software support renewals, contributing 17.6% to the total revenue. Goldman Sachs (NYSE:GS) reaffirmed its Buy rating on Arista Networks, projecting a revenue growth target of at least 14% in 2024. The firm's confidence is supported by Arista's strong performance across its diverse portfolio, including AI and cloud services. Deutsche Bank (ETR:DBKGn) also maintained its Hold rating on Arista, suggesting a positive outlook for the company's growth potential through 2025. The firm's analysis indicates that increased capital expenditures by major cloud service providers could lead to Arista surpassing its 14% revenue growth target for 2024. These recent developments include Arista's repurchase of $172 million of its common stock and the generation of $989 million in operating cash. The company has provided a positive outlook for the fiscal year '24, expecting a revenue growth of at least 14%. However, it's important to note that operating expenses increased to $319.8 million due to higher headcount and new product introduction costs. Arista Networks (NYSE:ANET) has been in the spotlight following Evercore ISI's optimistic outlook, and data from InvestingPro strengthens the case for their market position and growth potential. With a significant market capitalization of $112.3 billion and a P/E ratio standing at 44.89, Arista Networks showcases its substantial size and the high expectations investors have for its earnings growth. The company's revenue growth is impressive as well, with a 19.93% increase over the last twelve months as of Q2 2024, demonstrating its ability to expand its financial footprint effectively. InvestingPro Tips for Arista Networks highlight the company's strong financial health, with cash reserves surpassing debt, and the fact that 19 analysts have revised their earnings estimates upwards for the upcoming period, signaling confidence in its future performance. These tips underscore the company's robust fundamentals, which may reassure investors looking for stable and potentially profitable opportunities. With Arista's role as a prominent player in the Communications Equipment industry and its high return over the last year, investors could be looking at a company that not only has a strong past performance but also a promising outlook. For those interested in further insights, InvestingPro offers additional tips on Arista Networks, providing a more detailed analysis of the company's financials and market prospects. Visit InvestingPro for a comprehensive view of Arista Networks and to explore the full spectrum of expert financial tips.