Arista succeeds where Cisco came up short - to the benefit of its stock

By Emily Bary

Arista did a better job than networking rival Cisco when it came to calming margin fears and refocusing attention around AI

Arista boosted elements of its guidance on Thursday.

Investors have responded very differently to earnings reports from Arista Networks and Cisco Systems, two rivals in networking.

Arista's stock (ANET) soared 12% in Thursday's extended session, a move that stands in stark contrast to the 12% drop seen in Cisco's shares (CSCO) during regular trading.

The split reaction comes down to how the companies discussed their margin expectations. Arista maintained its forecast for a 62% to 64% gross margin this year, which CFO Chantelle Breithaupt said on the earnings call was "inclusive of mix, and anticipated supply-chain cost increases for memory."

The margin guidance was in line with what analysts were expecting, according to Raymond James' Simon Leopold. Investors were more disappointed by Cisco's margin forecast and the way it's being impacted by high memory prices, he added.

See also: Why Cisco's stock fell hard - and took the tech sector with it

Both companies are seeing benefits from the artificial-intelligence boom, and Arista's better-received margin commentary seems to have allowed investors to focus more on things like general business momentum.

"Given the ongoing volatility and supply-chain issues, we think not just the performance but also their guide is extremely impressive given the conservative stance [Arista] has historically had," Evercore ISI analyst Amit Daryanani said in a note to clients.

He noted that the company now expects 25% growth this year, whereas it was previously targeting 20% growth. Arista also is modeling $3.25 billion in AI networking revenue, higher than its prior forecast.

"We find ourselves at the epicenter of mission-critical network transactions," CEO Jayshree Ullal said on the earnings call.

Daryanani came out of the report feeling upbeat about the stock, which he calls his top pick. Arista "is positioned to sizably outperform their guide and end up with 30%+ growth over the next several years," he wrote, as he boosted his price target to $200 from $175.

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-Emily Bary

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02-12-26 2153ET