Is Arista Networks a Smart Buy for the Next Phase of AI Infrastructure?

When investors talk about the growing artificial intelligence (AI) market, they tend to focus on chipmakers like Nvidia and cloud leaders like Microsoft (NASDAQ: MSFT). However, the AI boom also generates strong tailwinds for companies that help data centers expand their AI infrastructure to support those demanding applications.

One of those top AI infrastructure plays is Arista Networks (NYSE: ANET), which provides networking hardware and software for many of the top cloud and AI companies. Its stock has already rallied more than 953% over the past five years -- but is it still a worthwhile investment?

Image source: Getty Images.

What happened to Arista over the past few years?

Arista differentiates itself from its larger competitor, Cisco Systems (NASDAQ: CSCO), in two major ways. First, Arista mainly sells low-latency switches that are optimized for hyperscale cloud deployments, while Cisco bundles together a broader range of enterprise campus, branch, wide-area networking (WAN), and data center solutions.

Second, Arista makes its modular operating system, EOS, compatible with a wider range of open networking protocols than Cisco's systems, which often lock its customers into a "walled garden." Arista's CloudVision platform also helps its customers monitor their data center infrastructure.

So even though Cisco is still the leading "one stop shop" for big enterprise networks, Arista's flexibility, scalability, and focus on hyperscale deployments made it the preferred networking hardware and services provider for cloud giants like Microsoft and Meta Platforms (NASDAQ: META).

That's why Arista is growing much faster than Cisco. From 2020 to 2024, Arista's revenue grew at a compound annual growth rate (CAGR) of 32%. It achieved that robust growth even as the pandemic, inflation, rising interest rates, trade wars, geopolitical conflicts, and other macroheadwinds rattled the markets.

Data source: Arista Networks. YOY = Year-over-year. *Adjusted for stock splits. EPS = earnings per share.

In 2023 and 2024, Arista's growth slowed down for three reasons. First, the challenging macroenvironment drove some of its top customers to rein in their spending. It generated 26% of its revenue from Meta in 2022, but that percentage dropped to 21% in 2023 and 15% in 2024.

Second, Arista faces competition from generic "white box" networking hardware makers and open source operating systems. Lastly, it's rolling out its higher-speed 800G products for handling heavier AI workloads, but the revenue from those sweeping upgrades can be lumpy.

Will Arista keep growing over the next few years?

From 2024 to 2027, analysts expect Arista's revenue and earnings per share (EPS) to grow at a compound annual growth rate (CAGR) of 22% and 21%, respectively. That's a bit higher than Arista's own outlook for "mid-teens" revenue growth from fiscal 2026 through fiscal 2029. Most of that growth should be driven by more demanding AI workloads, hyperscale cloud deployments, enterprise campus upgrades, and the upgrades to its higher-speed switches.

However, that growth could be throttled by the uneven timing of its hyperscale orders, white box competition, and a rising inventory of uninstalled products. Any big changes in AI spending at Meta and Microsoft, its two largest customers, could also generate unpredictable headwinds. Those two companies could also leverage their scale to drive Arista to lower its prices. At 45 times next year's earnings, a lot of growth is already baked into Arista's stock price. Cisco, which is growing at a much slower rate, trades at 22 times next year's earnings. Therefore, any signs of a slowdown could quickly compress its valuations and deflate its stock.

Is Arista Networks a good AI infrastructure buy right now?

Arista is growing much faster than Cisco and other traditional networking companies; it's carved out a niche in the expanding AI market; and it has plenty of irons in the fire. However, it's a bit richly valued in a market that is already trading at historically high valuations. In other words, Arista is still worth nibbling on as a long-term play on the AI infrastructure market -- but it would be a bit reckless to go all-in on this high-flying stock.

Leo Sun has positions in Meta Platforms. The Motley Fool has positions in and recommends Arista Networks, Cisco Systems, Meta Platforms, Microsoft, and Nvidia. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.