Can ANET's AI-Focused Portfolio Help Stoke Growth for the Stock?

Arista Networks, Inc. ANET is increasingly focusing on expanding its AI-based portfolio to capitalize on the rapid evolution of network, compute, memory, storage and interconnect I/O due to real-time gaming, virtual reality, generative AI and metaverse applications. The company offers a vast range of IP/Ethernet-based solutions for AI/ML workloads with low latency, high bandwidth, scalable and multi-tenant networks that interconnect hundreds or thousands of accelerators at high speed from 100Gbps to 800Gbps and beyond.   

The company recently launched the next-generation family of R4 Series platforms for AI, data center and routed backbone deployment. With a broad portfolio of fixed and modular solutions for scalable and multiple use cases, the R4 family of routers helps customers reduce the total cost of ownership (TCO) while ensuring high performance, low AI job completion time, low power consumption and integrated security.

Arista’s Etherlink portfolio offers high-performance standards-based Ethernet systems with smart features for AI networking. These include a portfolio of specialist load balancing and congestion control features, which improve cluster deployment time, operational stability and provide deep visibility supported by AVA machine learning. An Ethernet-based AI network enables efficient and flexible network designs that eliminate compatibility issues and the need for inter-domain gateways that often lead to pipeline bottlenecks.

Arista EOS: Key Catalyst for AI Networks

Arista Extensible Operating System (EOS) is the core of its cloud networking solutions for next-generation data centers and high-performance AI networks. It 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 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. 

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.

Arista 2.0 Strategy Lends Support

The Arista 2.0 strategy is resonating well with customers, as its modern networking platforms are foundational for the transformation from silos to data centers. The company boasts a comprehensive portfolio with the right network architecture for client-to-campus data center cloud and AI networking, backed by three guiding principles. These include 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.

The Arista 2.0 strategy includes three components that are likely to drive growth over the next few years. The first component involves focused plans to invest in core businesses by rolling out new solutions and improved AI offerings. Secondly, Arista aims to emphasize more on software-as-a-service for improved revenue visibility. Last but not least, the company plans to enter adjacent markets to target a broader customer base.

Price Performance

Arista has surged 19% over the past year compared with the industry’s growth of 3.1%. It has outperformed its peers like Hewlett Packard Enterprise Company HPE but lagged Cisco Systems, Inc. CSCO. While Hewlett Packard has gained 8.3%, Cisco is up 28.2% over this period.

One-Year ANET Stock Price Performance

Estimate Revision Trend of ANET

Earnings estimates for Arista for 2025 have climbed 19% to $2.88 over the past year, while the same for 2026 has increased 17% to $3.31. The positive estimate revision depicts optimism about the stock’s growth potential.

ANET Plagued by Margin Woes

Despite the positives, Arista continues to derive a substantial portion of its revenues from a limited number of large customers, leading to high customer concentration risk. 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.

End Note

With healthy revenue-generating potential driven by robust demand trends for AI solutions, 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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This article originally published on Zacks Investment Research (zacks.com).

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