Arista Networks Rides AI Wave to Record Growth, Faces Challenges Ahead

Arista Networks: 5 Key Takeaways for Long-Term Investors | The Motley Fool

Arista Networks (ANET -1.71%) held its fourth-quarter 2024 earnings call on February 18, 2025, highlighting strong momentum in artificial intelligence (AI) networking and cloud infrastructure. For long-term investors, the discussion revealed important insights about Arista's competitive positioning in high-performance networking, its expansion beyond core cloud customers, and its strategy for capturing the growing AI infrastructure opportunity. The rapid growth of AI workloads is creating significant demand for specialized networking solutions, and Arista has established itself as a critical provider for the most demanding deployments. The company's AI strategy spans both "back-end" clusters connecting GPU systems and "front-end" networks linking to broader infrastructure. Three out of the four customers are expected to this year roll out a cumulative of 100,000 GPUs. ... When you're buying these expensive GPUs that cost $25,000, they're like diamonds, right? You're not going to string a diamond on a piece of thread. -- Jayshree Ullal, CEO This validates Arista's technological leadership in the highest-value segments of AI networking, where reliability and performance are paramount. The company's ability to win major AI deployments demonstrates both its technical capabilities and its strong relationships with leading customers. While maintaining strong relationships with key cloud customers Microsoft (NASDAQ: MSFT) and Meta (NASDAQ: META), Arista has successfully diversified its revenue streams across multiple customer segments and use cases. Our cloud and AI titans contributed significantly at approximately 48%. ... Enterprise and financials were strong at approximately 35%, while the providers, which now includes Apple, was at 17% approximately. -- Jayshree Ullal, CEO This balanced growth reduces customer concentration risk while demonstrating Arista's ability to leverage its technology across broader markets. The company's success in enterprise particularly highlights the transferability of its cloud-proven solutions. Arista is building a significant software and subscription business that enhances its value proposition and creates more predictable revenue streams. We are pleased to surpass for the first time, the $1 billion revenue mark in 2024 for the software and subscription service category. ... We added over 350 CloudVision customers translating to literally one new customer a day. -- Jayshree Ullal, CEO The growth in software and subscription revenue demonstrates Arista's evolution beyond pure hardware sales into higher-margin, recurring revenue streams that deepen customer relationships. Despite strong overall growth, Arista identified international markets as a key area for improvement and investment. One area I'd like to see more strength ... is international. We're bringing in some new leadership there and hope to see some significant contributions in the next year or so. -- Jayshree Ullal, CEO This transparent acknowledgment of an area needing improvement, coupled with specific actions to address it, suggests potential for additional growth as international execution improves. Arista's continued investment in research and development is driving meaningful product differentiation and market leadership. Just in 2024 alone, we introduced six EOS [Extensible Operating System] software releases with greater than 600 new features across our core and adjacent offerings. ... We have increased our 400-gig customer base to approximately 1,000 customers last year in 2024. -- Jayshree Ullal, CEO This aggressive pace of innovation helps maintain Arista's competitive advantages in high-performance networking while enabling expansion into new markets and use cases. Arista's management expressed strong confidence in their 2025 outlook, particularly regarding AI infrastructure opportunities. With technological leadership in high-speed networking, strong cloud relationships, and growing enterprise presence, the company appears well-positioned to capture expanding market opportunities. Management is focused on AI deployment execution, international expansion, and maintaining technology leadership through continued innovation. As Ullal emphasized, "customers are not only looking to connect, but unify and consolidate their data across silos for optical networking outcomes ... placing us in a very unique position as the best-of-breed innovator for data-driven networking."

Arista Network Shares Slump Despite Upbeat Outlook Fueled by AI. Should Investors Buy the Stock on the Dip? | The Motley Fool

Shares of Arista Networks (ANET -4.93%) slipped despite the cloud computer networking switch maker reporting solid fourth quarter results and increasing its full-year 2025 guidance. The stock is now down more than 5% year to date, as of this writing. Let's take a close look at Arista's results and guidance to see if this is a good opportunity to buy the stock. While Arista turned in strong results, investors were anxious that white-box competitors could be taking share of its major customers. White-box equipment refers to generic, off-the-shelf switches. The company has long seen white-box competition, and it has always looked to differentiate itself through its software. On its earnings call, it said with artificial intelligence (AI) infrastructure that it differentiates itself through AI visibility, real-time analytics, personal queuing, congestion control, and, most importantly, a smart system upgrade that can give an alternate connection if a graphic processing unit (GPU) is in trouble. The company is very dependent on hyperscalers, or companies with massive data center operations, which it calls Cloud Titans. Microsoft is its largest customer, accounting for around 20% of revenue, while Meta Platforms accounts for just under 15%. Oracle, meanwhile, is a recent customer to this list. Investors appeared mostly concerned with Meta, as 2024 revenue from the company fell about 17%. This could be backed out as 21% of Arista's $5.9 billion in revenue from 2023 came from Meta ($1.2 billion), while 14.6% of its $7 billion in 2024 revenue ($1 billion) came from the company. However, this decline came after the end of a pretty large 400G (gigabit) switching upgrade at Meta that ended in 2023. The 400G refers to ethernet speed. Arista now has more than 1,000 400G customers and expects to begin seeing 800G customers this year with back-end GPU clusters. Overall, Arista saw its Q4 revenue jump 25% to $1.93 billion, while adjusted EPS also climbed 25% to $0.63. That topped analyst expectations for revenue of $1.9 billion and adjusted EPS of $0.57. Notably, deferred revenue rose by $280 million sequentially to $2.79 billion, including a $150 million increase for products. Changes in deferred revenue can be an indication of future revenue growth. The company said that AI and data center products made up 65% of its total revenue and that its market share in high-performance switching was more than 40%. Network adjacencies, such as routing and cognitive AI-driven campus solutions, brought in about 18% of revenue, while subscription-based network services earned about 17% of revenue. Arista ended the quarter with $8.3 billion in cash and marketable securities after buying back $423.6 million worth of stock at an average price of $77.13 per share during the year. It generated $3.7 billion of free cash flow in the year. Looking ahead, Arista forecast revenue to grow by 17% to around $8.2 billion. That was above its initial forecast for 15% to 17% growth. The company continues to expect AI revenue to be around $1.5 billion, with $750 million in AI back-end clusters. It noted that three large customers will roll out 100,000 GPU clusters this year. For Q1, the company projected revenue to range from $1.93 billion to $1.97 billion, representing growth of 23% to 25%. Arista tends to be conservative with guidance, so it's not a surprise that the company didn't raise its forecast by more, which it seems investors wanted. The 2024 decline in Meta revenue, meanwhile, comes on the back of some very strong prior growth related to switching upgrades. There isn't a big indication that the company is losing any market share with its big customers. Meanwhile, its strong deferred revenue increase should be a good sign that the guidance is conservative and that the company will continue to raise its expectations throughout the year. It is projecting a strong Q1, so this is not a backloaded forecast. Meanwhile, with capital expenditures (capex) for AI infrastructure increasing this year, including big spending from Microsoft and Meta, Arista should be in good shape to capitalize on this growth. Trading at a forward-price-to-earnings (P/E) ratio of 41 times 2025 analysts' estimates, Arista's stock is still not cheap, even after the pullback. The stock's valuation looks elevated, given its projected growth. As such, I would not be a buyer on the dip, as I'd like to see a more pronounced pullback or higher revenue growth before jumping into the stock.

Arista Earnings: AI Wave Keeps Rolling | The Motley Fool

In the high-speed data center switch market, Arista is now officially king. The company surpassed Cisco Systems (CSCO -0.43%) last year in dollar-based and port-based market share, continuing a years-long ascendance. Booming demand from cloud computing giants investing in artificial intelligence (AI) infrastructure has been the driving force behind Arista's market share gains. Arista reported solid fourth-quarter results to cap 2024. Revenue was up 25% year over year, and the company enjoyed a healthy adjusted gross margin of 64.2%. Operating cash flow nearly doubled in the fourth quarter, leading full-year operating cash flow to rise more than 80%. Arista surpassed $7 billion of annual revenue in 2024, and it's targeting revenue of $8.2 billion in 2025. That works out to 17% growth, a slight slowdown compared to 2024's 19.5% growth rate. In the long run, the company sees its addressable market growing to $70 billion by 2028, driven by demand for ultra-fast data center switches. Within that 2025 revenue outlook, Arista is targeting $750 million in campus revenue and $750 million in AI back-end revenue. AI back-end networking covers the hardware used to connect AI accelerators together within a data center. Share prices of Arista were essentially unchanged in early after-hours trading soon after the fourth-quarter report was released. The company beat analyst estimates, but expectations may have been high enough to keep a lid on the stock. With the company expected high-teens revenue growth this year against a backdrop of a massive build-out of AI data centers by multiple tech giants, investors may have been expecting a bit more. Arista estimates that up to 45% of its long-run revenue mix will come from cloud and AI giants. In fiscal 2023, Microsoft (MSFT 0.30%) and Meta Platforms (META -2.76%) alone accounted for roughly 39% of total revenue. As tech giants pour tens of billions of dollars into AI data centers, Arista's products are in high demand. The downside to this revenue concentration is that Arista's growth is heavily dependent on the AI boom continuing unabated. Any pullback in AI-related spending, even from a single large customer, could greatly reduce Arista's growth rate. With that in mind, Arista is on track for another solid year in 2025, albeit with a slightly lower revenue growth rate.

Arista Networks' growth accelerates, driven by relentless AI investments - SiliconANGLE

Arista Networks' growth accelerates, driven by relentless AI investments Arista Networks Inc. delivered a higher profit in the fourth quarter, thanks to a double-digit sales increase driven by growing demand for artificial intelligence networks. It also forecast revenue for the current quarter that came in above Wall Street's estimates. The cloud networking company reported a net profit of $801 million in the quarter, up from just $613.6 million in the year-ago period. Earnings before certain costs such as stock compensation came to 65 cents per share, easily beating the Street's 57 cent guidance. Revenue rose 25% from a year earlier to $1.93 billion, topping the $1.9 billion consensus estimate. Chief Executive Jayshree Ullal (pictured) hailed fiscal 2024 as a "remarkable year" for the company, in which it generated a record $7 billion in revenue. The latest results highlight the growing demand for the advanced networking infrastructure needed to support complex AI workloads. Over the last year, Arista has delivered a string of successive earnings and revenue beats as its main customers scramble to build out their AI capabilities. Unlike traditional data center workloads, AI applications require a blazing-fast communications infrastructure to operate effectively, which is exactly what Arista specializes in. The company is a rival to the much larger Cisco Systems Inc., focused on selling premium networking gear such as switches that facilitate high-speed communication between racks of computer servers in corporate data centers. Its biggest customers are the so-called hyperscaler cloud infrastructure providers, such as Microsoft Corp. and Meta Platforms Inc., but it also has a strong presence in the enterprise market, helping organizations to build out their on-premises data centers. "We continued to innovate for our customers with best-of-breed platforms enabling AI for networking and networking for AI," Ullal said. Analysts believe that Arista is likely to continue to benefit from the rising demand for robust networking platforms for the foreseeable future. Its prospects have been bolstered by recent statements from its biggest customers, who intend to double down on their AI spending. Earlier this month, Meta Platforms, Microsoft, Google LLC and Amazon Web Services Inc. all announced plans to increase their capital expenditure this year. That explains why Arista appears so optimistic about the current quarter. The company is looking for first-quarter sales of between $1.93 billion and $1.97 billion, well ahead of the Street's target of $1.91 billion. Despite the optimism, Arista's stock surprisingly declined more than 4% in the extended trading session, erasing an earlier gain of 3% that occurred during regular trading. However, it may simply be the case that investors are opting to take profits, as Arista's stock has gained more than 70% in the last 12 months. During the quarter, Arista completed a four-for-one stock split, which means that each shareholder received three additional shares in the company. The split was designed to make Arista's stock more accessible to smaller retail investors. Arista isn't the only networking firm that's being boosted by rampant AI sales. Earlier this month, another rival, Juniper Networks Inc., also topped analyst's expectations on earnings and revenue.

Arista Networks' growth accelerates, driven by big AI investments - SiliconANGLE

Arista Networks' growth accelerates, driven by big AI investments Arista Networks Inc. delivered a higher profit in the fourth quarter, thanks to a double-digit sales increase driven by growing demand for artificial intelligence networks. The cloud networking company also forecast revenue for the current quarter that came in above Wall Street's estimates. It reported a net profit of $801 million in the quarter, up from just $613.6 million in the year-ago period. Earnings before certain costs such as stock compensation came to 65 cents per share, easily beating the Street's 57-cent guidance. Revenue rose 25% from a year earlier, to $1.93 billion, topping the $1.9 billion consensus estimate. Chief Executive Jayshree Ullal (pictured) hailed fiscal 2024 as a "remarkable year" for the company, in which it generated a record $7 billion in revenue. The latest results highlight the growing demand for the advanced networking infrastructure needed to support complex AI workloads. Over the last year, Arista has delivered a string of successive earnings and revenue beats as its main customers scramble to build out their AI capabilities. Unlike traditional data center workloads, AI applications require a blazing-fast communications infrastructure to operate effectively, which is what Arista specializes in. The company is a rival to the much larger Cisco Systems Inc., focused on selling premium networking gear such as switches that facilitate high-speed communication between racks of computer servers in corporate data centers. Its biggest customers are the so-called hyperscaler cloud infrastructure providers, such as Microsoft Corp. and Meta Platforms Inc., but it also has a strong presence in the enterprise market, helping organizations to build out their on-premises data centers. "We continued to innovate for our customers with best-of-breed platforms enabling AI for networking and networking for AI," Ullal said. Analysts believe that Arista is likely to continue to benefit from the rising demand for robust networking platforms for the foreseeable future. Its prospects have been bolstered by recent statements from its biggest customers, which intend to double down on their AI spending. Earlier this month, Meta Platforms, Microsoft, Google LLC and Amazon Web Services Inc. all announced plans to increase their capital expenditures this year. That explains why Arista appears so optimistic about the current quarter. The company is looking for first-quarter sales of between $1.93 billion and $1.97 billion, well ahead of the Street's target of $1.91 billion. Despite the optimism, Arista's stock surprisingly declined more than 4% in the extended trading session, erasing an earlier gain of 3% that occurred during regular trading. However, it may simply be the case that investors are opting to take profits, as Arista's stock has gained more than 70% in the last 12 months. During the quarter, Arista completed a four-for-one stock split, which means that each shareholder received three additional shares in the company. The split was designed to make Arista's stock more accessible to smaller retail investors. Arista isn't the only networking firm that's being boosted by rampant AI sales. Earlier this month, another rival, Juniper Networks Inc., also topped analysts' expectations on earnings and revenue.

Arista Networks Sees First-Quarter Revenue Above Estimates as AI Boom Fuels Demand

(Reuters) - Arista Networks forecast first-quarter revenue above Wall Street estimates on Tuesday, anticipating higher demand for its cloud networking gear from a boom in artificial intelligence applications and chips. The results underscore growing demand for advanced networking infrastructure capable of supporting complex AI workloads. As more enterprises adopt AI technologies, Arista stands to benefit from increased demand for advanced networking capabilities to support these initiatives. Analysts anticipate that Arista will continue to benefit from the ongoing digital transformation across industries and the increasing demand for robust networking solutions. The company's prospects are further bolstered by increased capital expenditure from major cloud players, including Microsoft and Meta Platforms, which bodes well for Arista as a key supplier in this space. Arista completed a four-for-one stock split in December, as a result of which each shareholder received three additional shares. Peer Juniper Networks earlier this month topped analysts' estimates for preliminary fourth-quarter revenue and profit. Arista forecast first-quarter revenue in the range of $1.93 billion to $1.97 billion, compared with estimates of $1.91 billion, according to data compiled by LSEG. Its revenue for the fourth quarter ended December 31 came in at $1.93 billion, slightly above analysts' estimate of $1.90 billion. On an adjusted basis, the company earned 65 cents per share, compared with profit of 52 cents apiece in the previous year. (Reporting by Juby Babu in Mexico City; Editing by Alan Barona)