Should ANET Stock Be Added to Your Portfolio Post Record Q4 Earnings?

Arista Networks, Inc. ANET reported strong fourth-quarter 2025 results, with revenues and adjusted earnings soaring year over year, driven by robust demand trends. Quarterly revenues surged to $2.49 billion from $1.93 billion in the prior-year quarter, driven by strength across the product portfolio. On a non-GAAP basis, net income was a record high at $1.05 billion or 82 cents per share compared with $849.6 million or 66 cents per share in the year-earlier quarter. 

Innovative product launches and steady customer additions backed by the company’s best-in-class portfolio strength led to top-line expansion, while steady margin improvement contributed to earnings growth. Both the bottom and the top lines beat the Zacks Consensus Estimate.

Arista 2.0 Momentum Gaining Steam

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 surpassed shipments of 150 million cumulative ports in the fourth quarter. Arista 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.

Portfolio Strength, Cloud Transition Buoys Arista

Arista offers one of the broadest product lines of data center and campus Ethernet switches and routers in the industry, with industry-leading capacity, low latency, port density and power efficiency. It holds a leadership position in 100-gigabit Ethernet switches for the high-speed data center segment and is increasingly gaining market traction in 200 and 400-gigabit switching products. Over the years, the company has introduced various products to meet the rising demands of AI/ML-driven network architectures. These innovations have enabled Arista to deliver a superior customer experience and increase customer engagement. 

The company 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. Arista is benefiting from the expanding cloud networking market, driven by the 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.

With customers deploying transformative cloud networking solutions, the company has announced several additions to its multi-cloud and cloud-native software product family with CloudEOS Edge. It has introduced cognitive Wi-Fi software that delivers intelligent application identification, automated troubleshooting and location services. The versatility of Arista’s unified software stack across various use cases, including WAN routing and campus and data center infrastructure, has helped it to record steady top-line growth.

Price Performance

Arista has surged 27.5% over the past year against the industry’s decline of 20%. It has also outperformed peers like Hewlett Packard Enterprise Company HPE and Cisco Systems, Inc. CSCO. While Hewlett Packard has gained 4.1%, Cisco is up 18.9% over this period.

One-Year ANET Stock Price Performance

Estimate Revision Trend

Earnings estimates for Arista for 2026 and 2027 have remained steady at $3.30 and $3.93 over the past seven days. The flat estimate revision trajectory depicts that investors are neither too bullish nor bearish about the stock’s growth potential.

Margin Woes Deter ANET

Despite healthy inherent growth potential, Arista remains plagued by depleting margins. As it continues to enhance its existing product line and develop new technologies and products that address emerging technological trends, evolving industry standards and changing end-customer needs, operating costs tend to soar. Moreover, the redesigning of products and their supply chain mechanism has eroded margins. Although the company is witnessing increased demand, 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, 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. Steady improvement in lead times and easing of supply-chain woes are major tailwinds. 

However, margin woes amid high selling, general & administrative and R&D costs and elevated customer inventory levels weigh on its bottom line. A tepid estimate revision further casts a shadow over its long-term growth prospects. 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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