Arista Networks: Wall Street's Under-the-Radar AI Play Faces Tariff Headwinds

Goldman and Bank of America see 30%-plus upside for this under-the-radar AI play

Two major Wall Street shops singled out Arista Networks as a buy, even as shares pull back in the wake of earnings. The cloud computing company on Tuesday narrowly topped LSEG first-quarter revenue estimates, but managed a solid beat on the bottom line. Arista earned 65 cents per share, excluding items, on revenue of $2 billion. Analysts predicted it would earned 59 cents per share on $1.97 billion in revenue. Shares of Arista have tumbled 18% in 2025, and were down more than 7% on Wednesday. ANET 1Y mountain ANET 1Y chart Goldman Sachs and Bank of America both reiterated their buy ratings on the stock. However, Goldman Sachs analyst Michael Ng lowered his 12-month target price to $115 from $130, citing uncertainty from tariffs in the latter half of the year. Ng's forecast represents a 27% upside for Arista. Ng expects Arista will continue to benefit from the artificial intelligence trade, which will be a catalyst for the stock. "ANET highlighted momentum in AI demand & reiterated its expectations to generate at least $750 mn in back-end AI switching revenue in 2025 across its four major AI cluster projects, with 3/4 already in production; the company expects to see strong pull through of front-end AI switching (~1:1) but acknowledged the difficulty in identifying what products are deployed in the front-end," he wrote. While tariff uncertainties certainly linger for the stock, most of Arista's production volume is in Mexico, which is compliant with the current U.S.-Mexico-Canada trade agreement, or USMCA. Ng added that Arista's full-year outlook appears conservative given its positive momentum in the cloud computing business. Bank of America analyst Tal Liani also highlighted Arista's potential in cloud computing as a major tailwind. Liani's $130 price target corresponds to a potential 43% rally from Arista's Tuesday close. "Putting aside the tariff impact, we believe Arista proves repeatedly that it can successfully compete with white box switching and Nvidia's solutions, with a stable position within its key Cloud Titan customers, and a leading position with Baby Clouds and Enterprises," Liani wrote. Specifically, Arista's key cloud titan and hyperscaler customers, Meta and Microsoft, have announced plans to respectively increase capital expenditures spending by 70% and 44% this year. "For next year, we expect Meta to slow meaningfully but Microsoft should ramp its Ethernet back-end (AI) deployments, benefiting Arista and potentially offsetting some of Meta's rationalization," the analyst added.

Arista's Stock Hit As Analysts Cut Targets Over Tariff Uncertainty Despite Strong AI Demand - Arista Networks (NYSE:ANET)

Arista Networks ANET stock traded lower on Wednesday after Wall Street analysts cut their respective price targets. Goldman Sachs analyst Michael Ng maintained a Buy rating on Arista Networks with a price target of $115 ($130 prior). Arista Networks' first-quarter 2025 EPS of $0.65 beat Ng and FactSet consensus of $0.62 and $0.59 with revenue of $2.00 billion beating consensus of $1.97 billion and guidance of $1.93 billion-$1.97 billion. Also Read: Jim Cramer: Arista Networks Is 'Down Way Too Much,' Uber 'Goes Higher' The EPS beat was also driven by strength in gross margins (64.1% versus Ng and consensus of 63.0% and 63.2%), which were driven by higher non-cloud revenue. Adjusted gross profit of $1.285 billion was slightly above Ng and consensus of $1.277 billion and $1.243 billion. Gross margins of 64.1% beat Ng and consensus of 63.0% and 63.2%. Adjusted EBIT of $957 million beat Ng and consensus $935 million and $872 million with margins of 47.8% above Ng and consensus of 46.1%and 44.3%. First, Arista Networks highlighted momentum in AI demand and reiterated its expectations to generate at least $750 million in back-end AI switching revenue in 2025 across its four major AI cluster projects, with 75% already in production; the company expects to see a strong pull through of front-end AI switching (~1:1) but acknowledged the difficulty in identifying what products are deployed in the front end. Second, Arista Networks sized a potential 1.0%-1.5% gross tariff impact before mitigation efforts, such as supply chain optimization, absorption, and price increases. Arista Networks' tariff exposure is primarily related to the potential for reciprocal tariffs in Malaysia/Vietnam to resume after July 9; most production volume in Mexico is USMCA compliant. Third, despite the in-quarter beat and positive momentum with Cloud Titans, Arista Networks did not raise (but reiterated) its full-year outlook for revenue, gross margins, or EBIT margins. Arista Networks characterized its decision not to raise its full-year outlook as conservative, given the wide range of outcomes related to the tariff environment. It expects to update quarter by quarter. Arista Networks guided second-quarter 2025, including revenue of ~$2.1 billion (versus consensus of $2.03 billion), adjusted gross margins of ~63% (versus consensus of ~62.4%), and adjusted EBIT margins of ~46% (versus consensus of ~44.4%). Arista Networks reiterated its full-year 2025 guidance, including revenue growth of 17%, adjusted gross margins of 60%-62%, and adjusted EBIT margins of 43%-44%. Despite outperformance in the first quarter and the outlook for continued momentum in the second quarter, Arista Networks left its fiscal guidance unchanged to reflect uncertainty in potential tariff scenarios (1%-1.5% gross tariff impact without mitigation). Price Action: ANET stock is down 6.40% at $94.98 at last check Wednesday. Read Next: Cisco Unveils Quantum Chip And Lab To Push Next-Gen Networking Photo: Shutterstock ANETArista Networks Inc$86.30-4.92%Stock Score Locked: Want to See it? Benzinga Rankings give you vital metrics on any stock - anytime. Reveal Full ScoreEdge RankingsMomentum80.44Growth82.26Quality76.87Value13.87Price TrendShortMediumLongOverviewGot Questions? AskWhich AI-driven companies could thrive next?How will tariff impacts affect tech firms?Are cloud service providers at risk from tariffs?Who benefits from Arista's AI momentum in 2025?Which investors should watch Arista Networks closely?Could USMCA compliance be a competitive edge?What strategies can mitigate tariff risks?How might market sentiment shift post-earnings?Which investments are safest in volatile markets?Is Arista Networks undervalued amid uncertainty?Powered ByMarket News and Data brought to you by Benzinga APIs