Arista Earnings: Impressive Performance Continues

Key Morningstar Metrics for Arista Networks

• Fair Value Estimate: $300.00
• Morningstar Rating: 2 stars
• Morningstar Economic Moat Rating: Wide
• Morningstar Uncertainty Rating: High

What We Thought of Arista Networks’ Earnings

We raise our fair value estimate for Arista Networks ANET to $300 per share from $270 after raising our growth forecast. We’d already been expecting strong high-teens growth from Arista over the next five years, but its success in artificial intelligence networking environments continues to impress, and we’ve bumped up our estimates further.

Arista beat our third-quarter expectations, raised its full-year guidance, and provided an optimistic outlook for 2025. We expect results to come in above management guidance in both the fourth quarter and 2025, given a history of conservative guidance, our belief in Arista’s exceptional position within high-performance networking, and our expectations for robust AI investment to continue.

Despite strong results and guidance, Arista’s stock fell as much as 7% after hours. We attribute the disconnect to lofty expectations priced into the stock, given the exuberance surrounding AI. These lofty expectations inform our view of Arista stock as overvalued. Our forecast calls for tremendous growth and profitability, but we fail to justify the firm’s current share price with fundamentals.

Third-quarter sales rose 20% year over year and 7% sequentially to $1.81 billion, beating our above-consensus expectations. We attribute Arista’s strong performance to high-speed networking deployments supporting AI clusters. We view Arista as best-of-breed for these high-speed networks, with placement in every leading hyperscale cloud provider. We expect growth to continue to be supported by high capital investment toward AI from large customers like Microsoft and Meta Platforms.

Fourth-quarter guidance came in above our optimistic model, and we expect Arista to outperform guidance again. At the midpoint of guidance, sales of $1.875 billion imply 22% growth year over year and 4% sequentially. We also view Arista’s non-GAAP operating margin outlook of 44% as conservative, given rampant revenue growth and levels above 46% throughout 2024.