Arista Earnings: AI Growth Momentum Continues to Impress, but Shares Remain Lofty

Key Morningstar Metrics for Arista Networks

• Fair Value Estimate: $82.00
• Morningstar Rating: ★★
• Morningstar Economic Moat Rating: Wide
• Morningstar Uncertainty Rating: High

What We Thought of Arista Networks' Earnings

Arista Networks' ANET fourth-quarter results eclipsed all of management’s guidance ranges. Revenue rose 25% year over year to $1.93 billion. First-quarter guidance implies more than 20% year-over-year growth, with a revenue midpoint of $1.95 billion.

Why it matters: Results and guidance both were close to our above-consensus expectations. We believe Arista’s strong growth over 2024 benefitted greatly from generative artificial intelligence investment, and we expect this dynamic to continue into 2025, with AI becoming a primary growth driver.

• Arista is enjoying strong placement in generative AI clusters. This aligns with our share-taking thesis for the firm, with its Ethernet switching portfolio winning over Nvidia’s proprietary networking products due to better performance and higher interoperability.
• We see Arista’s AI revenue targets as conservative, underrepresenting its total revenue opportunity from generative AI investment. We expect its actual AI revenue in 2025 to be significantly above management’s $1.5 billion target.

The bottom line: We’ve raised our fair value estimate for Arista to $82 per share from $75 after slightly raising our growth forecast and incorporating the time value of money after rolling our model forward for another year. In our view, shares remain overvalued.

• Our forecasts for Arista’s revenue and profitability in 2025 come in above management’s guidance, which we see as conservative. Management already raised its expectations for 2025 revenue (to 17% growth, from a midpoint of 15%) a quarter after providing initial guidance.

Despite beating FactSet consensus estimates, shares fell by 5% after-hours, indicating that investors in the stock had even higher expectations. We continue to see overly rosy growth expectations priced into the stock, even compared with our above-consensus forecasts over the next three years.