Arista Networks Reports Strong Q1 Results, But Stock Slumps on Cautious Outlook

Arista Networks forecasts an abrupt end to revenue growth, sending its stock lower - SiliconANGLE

Arista Networks forecasts an abrupt end to revenue growth, sending its stock lower Networking company Arista Networks Inc. warned that it's likely to miss revenue forecasts in the current quarter, with both its gross margin and operating margin set to decline. The warning, which came after Arista delivered strong first-quarter results, caused the company's stock to retreat by almost 4% in extended trading. The cloud networking company reported earnings before certain costs such as stock compensation of 64 cents per share, easily beating the analyst forecast of 56 cents. Revenue for the period came to $2 billion, up 27% from a year earlier and just ahead of the $1.98 billion projection by analysts. Meanwhile, net income came to $813.8 million, up from $637.7 million in the year-ago quarter. Arista Chairperson and Chief Executive Jayshree Ullal (pictured) said the rise of artificial intelligence and cloud computing continues to drive network transformation. "We surpassed $2 billion in revenue for the first time in Q1 2025 despite the unknowns around tariffs," she said. However, the company is clearly bracing itself for a rough ride in the coming weeks, and warned investors that it's unlikely to meet their expectations in the current quarter. Arista said it expects to generate around $2.1 billion in sales, falling just shy of Wall Street's target of $2.02 billion. The forecast suggests Arista's revenue growth is about to come screeching to a halt, at least on a sequential basis. The company also said its gross margin and operating margin numbers are likely to decline in the current quarter on a sequential basis. Gross margin came to 64.1% in the first quarter, while operating margin was 47.8%, but it is forecasting numbers of just 63% and 46% for the current quarter. The forecast came as a big disappointment for investors, who were hoping for a better outlook after two of Arista's biggest customers - Meta Platforms Inc. and Microsoft Corp. - said last week they're doubling down on their commitments to spend billions of dollars on AI infrastructure. The tech giants' plans had eased concerns that AI spending budgets might be slashed in response to U.S. President Donald Trump's tariff policies. Arista has been one of the biggest beneficiaries of the AI boom, as it sells premium networking gear such as switches and routers that facilitate high-speed communications between racks of servers in corporate data centers. AI data centers need this, as the biggest workloads are powered by huge clusters of connected graphics processing units. The growth of AI had helped Arista deliver a string of successive earnings and revenue beats in recent quarters, but the company's cautious guidance suggests that run could soon come to an end. During the quarter, Arista strengthened its AI network offerings, adding new capabilities to its EOS Smart AI Suite that aim to improve AI cluster performance and efficiency. The new features included a Cluster Load Balancing tool that helps to maximize AI workload performance with more consistent, low-latency network flows, and CloudVision Universal Network Observability, to aid in troubleshooting AI network workloads. In addition to its results, Arista's board of directors said it has approved an additional $1.5 billion in share repurchases. In the wake of today's after-hours decline, Arista's stock has now lost 17% of its value in the year to date.

Arista Networks beats expectations in its latest results, but stock moves lower - SiliconANGLE

Arista Networks beats expectations in its latest results, but stock moves lower Networking company Arista Networks Inc. delivered strong earning results today, but its stock fell after it warned that both its gross margin and operating margin are set to decline on a sequential basis. The warning, which came after Arista delivered strong first-quarter results, caused the company's stock to retreat by almost 4% in extended trading. The cloud networking company reported earnings before certain costs such as stock compensation of 64 cents per share, easily beating the analyst forecast of 56 cents. Revenue for the period rose 27%, to $2 billion, just ahead of the $1.98 billion projection by analysts. Meanwhile, net income came to $813.8 million, up from $637.7 million in the year-ago quarter. Arista Chairperson and Chief Executive Jayshree Ullal (pictured) said the rise of artificial intelligence and cloud computing continues to drive network transformation. "We surpassed $2 billion in revenue for the first time in Q1 2025 despite the unknowns around tariffs," she said. For the current quarter, Arista said it expects to generate $2.1 billion in sales, ahead of Wall Street's target of $2.03 billion. However, the company also said its gross margin and operating margin numbers are likely to decline in the current quarter on a sequential basis. Gross margin came to 64.1% in the first quarter, while operating margin was 47.8%, but it's forecasting numbers of just 63% and 46% for the current quarter. That was likely a disappointment for investors, who were hoping for more after two of Arista's biggest customers - Meta Platforms Inc. and Microsoft Corp. - said last week they're doubling down on their commitments to spend billions of dollars on AI infrastructure. The tech giants' plans had eased concerns that AI spending budgets might be slashed in response to U.S. President Donald Trump's tariff policies. Arista has been one of the biggest beneficiaries of the AI boom, as it sells premium networking gear such as switches and routers that facilitate high-speed communications between racks of servers in corporate data centers. AI data centers need this, as the biggest workloads are powered by huge clusters of connected graphics processing units. During the quarter, Arista strengthened its AI network offerings, adding new capabilities to its EOS Smart AI Suite that aim to improve AI cluster performance and efficiency. The new features included a Cluster Load Balancing tool that helps to maximize AI workload performance with more consistent, low-latency network flows, and CloudVision Universal Network Observability, to aid in troubleshooting AI network workloads. In addition to its results, Arista's board of directors said it has approved an additional $1.5 billion in share repurchases. In the wake of today's after-hours decline, Arista's stock has now lost 17% of its value in the year to date.

Arista's Sales, EPS Surge; Stock Slumps

Arista's first-quarter financial report was cause for celebration as far as the company was concerned. Revenue inched just above $2 billion for the first time ever, growing 28% from the same period a year earlier. Solid margin performance helped the company boost its adjusted earnings to $0.65 per share, 30% higher than in the year-earlier period. AI and other technological advances played their part in pushing Arista higher. The company highlighted its recent advanced AI capabilities to help make AI-enhanced networks more productive, ensuring reduced latency, better troubleshooting, and maximized workload performance. Just about the only potential negative was in Arista's guidance. Revenue of $2.1 billion would be slightly higher than what most investors were looking to see. However, calls for gross margin and operating margin to decline slightly from first-quarter levels might have been a disappointment. Immediate Market Reaction Perhaps because of that guidance, shares of Arista fell about 7% in the first hour of trading following the release of the report in Tuesday's after-hours trading session. Given that the stock hasn't performed terribly well during 2025 on the whole, many investors would have hoped for a more positive response to the results. Indeed, CFO Chantelle Breithaupt lauded Arista's strong business execution in generating such good performance. What to Watch It's consistent with Arista's view that the share price isn't fairly reflecting the company's potential that the volume of stock buybacks has risen substantially. Breithaupt noted that the $787 million in repurchases in the first quarter marked the highest level of stock repurchases in Arista's history. Moreover, the Arista board authorized another $1.5 billion for future buybacks. That could open the door for even more repurchase activity going forward -- particularly if the stock keeps losing ground despite what Arista sees as good long-term prospects for the business.