Arista Networks, Inc. ANET has surged 93.1% over the past year compared with the communication components industry’s growth of 75.3%. It has also outperformed its peers like Juniper Networks, Inc. JNPR and Cisco Systems, Inc. CSCO.
Arista continues to benefit from the expanding cloud networking market, which is led by a strong demand for scalable infrastructure. In addition to high capacity and easy availability, its cloud networking solutions promise predictable performance and programmability, enabling integration with third-party applications for network management, automation and orchestration.
The Arista 2.0 strategy is resonating well with customers, with its modern networking platforms being foundational for transformation from silos to centers of data. The company boasts a comprehensive portfolio with the right network architecture for client-to-campus data center cloud and AI (artificial intelligence) networking backed by three guiding principles. These include the best-in-class, highly proactive products with resilience, zero-touch automation and telemetry with predictive client-to-cloud one-click operations with granular visibility and prescriptive insights for deeper AI algorithms.
One-Year ANET Stock Price Performance
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Solid Portfolio, Business Model: ANET Key Strengths
Arista is benefiting from strong momentum and diversification across its top verticals and product lines with an improved market demand supported by a flexible business model and solid cash flow. As more business enterprises transition to the cloud, the company is well-poised for growth in data-driven cloud networking business with proactive platforms and predictive operations.
It holds a leadership position in 100-gigabit Ethernet switching share in port for the high-speed data center segment. Arista is increasingly gaining market traction in 200- and 400-gig high-performance switching products. In addition, the company offers one of the broadest product lines of data center and campus Ethernet switches and routers in the industry. It provides routing and switching platforms with industry-leading capacity, low latency, port density and power efficiency. The company also innovates in areas such as deep packet buffers, embedded optics and reversible cooling.
Arista is witnessing solid demand trends among enterprise customers backed by its multi-domain modern software approach, which is built upon its unique and differentiating foundation, the single EOS (Extensible Operating System) and CloudVision stack. The versatility of Arista’s unified software stack across various use cases, including WAN routing and campus and data center infrastructure, sets it apart from other competitors in the industry.
ANET Focusing on Cloud-Native Software
Arista has made several additions to its multi-cloud and cloud-native software product family with CloudEOS Edge. It has introduced new cognitive Wi-Fi software that delivers intelligent application identification, automated troubleshooting and location services. This supports video conferencing applications like Google Hangouts, Microsoft Teams and Zoom.
The acquisition of Awake Security, a Network Detection and Response platform provider that combines AI with human expertise to autonomously hunt and respond to insider and external threats, has expanded its cognitive campus portfolio with new platforms. These include the 750 Series modular chassis and the 720 Series 96 port fixed switch. Arista has also announced unified edge innovations across wired and wireless networks for its Cognitive Campus Edge portfolio for Enterprise Workspaces and an enterprise-grade Software-as-a-Service offering for the flagship CloudVision platform.
Earnings Estimate Revision Trend of ANET
Earnings estimates for Arista for 2024 have climbed 33.5% to $2.19 over the past year, while the same for 2025 has increased 33.9% to $2.41. The positive estimate revision depicts optimism about the stock’s growth potential.
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High Concentration Risks, Margin Woes Dent ANET Prospects
Arista continues to derive a substantial portion of its revenues from a limited number of large customers, leading to high customer concentration. Any change in demand patterns of these clients can significantly affect the top line. In addition, efforts to develop new technologies and products that address emerging technological trends, evolving industry standards and changing end-customer needs increase operating costs.
Moreover, the redesigning of products and their supply chain mechanism has eroded margins. The company is witnessing increased demand, but there are lingering supply bottlenecks for advanced products. As such, when Arista increases orders for these components and tries to build up inventory, it is blocking working capital.
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End Note
With healthy revenue-generating potential driven by robust demand trends, Arista appears poised for solid growth momentum. Further, a strong emphasis on quality, diligent execution of operational plans and continuous portfolio enhancements are driving more value for customers. Solid traction from the Arista 2.0 strategy is a major tailwind. An uptrend in estimate revision further portrays positive investor sentiments.
However, margin woes amid high selling, general & administrative and R&D costs and elevated customer inventory levels weigh on its bottom line. With a Zacks Rank #3 (Hold), Arista appears to be treading in the middle of the road, and investors could be better off if they trade with caution. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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