M Mohan
Private Equity at IncVangal, Former Microsoft Ventures Director
Arista Networks posted a good quarter, so its selloff should bounce back as others have. Q1 revenue grew 35%, beating expectations, non-GAAP EPS rose to $0.87 from $0.66, and it guides Q2 revenue to about $2.8B with 46-47% operating margins and EPS of about $0.88. It also launched XPO optics to cut rack and floor space in AI data centers. x.com x.comÂ
Arista Networks' accelerating revenue and gross profit against relatively flat operating expenses make existing shares hard to sell, and the AI revolution could take them higher down the road. EPS growth is strengthening. After a 20-fold run, P/E expansion from 25 to 58 and P/S from 8 to 22 leave it too expensive to enter now, though the valuation looks justified; the best gains may be over. If growth slows, prolonged consolidation is possible. x.comÂ
Arista Networks' double-beat quarter shows AI data-center networking demand remains very strong. Q2 revenue was $3.036 billion versus $2.818 billion expected, its first quarter above $3 billion, up 37.7% year over year; adjusted EPS was $1.02 versus $0.89, and adjusted operating margin 49.9% versus 46.8%. Q3 margin guidance of 48-49% also beat the 46.6% consensus. The weekly chart keeps making higher highs and lows, and after hours broke the trendline linking its 2025 and April 2026 highs. x.comÂ
Arista is losing share in a record market, a bad combination. Evercore's Q2 Ethernet front-end tracker shows the market at a record $7.3B, up 34% year over year, with cloud up 54% and neoclouds up 208%, yet Arista lost 145bps of front-end share. The tracker doesn't show who gained, though IDC ranked Nvidia's own Ethernet business first in data-center switching revenue in Q1, on a different vendor cut. x.comÂ
Arista Networks' excellent Q2 shows quality wins in the end. Revenue of $3.0B beat the $2.82B Bloomberg consensus and grew 38% year on year, while adjusted EPS of $1.02 beat $0.88 and grew 40%. x.comÂ
Arista Networks is a great, not widely known way to gain exposure to AI networking. It makes high-performance networking equipment and software that move data across data centers, cloud infrastructure, campus networks and AI clusters, used by hyperscalers, cloud companies and enterprises that need fast, reliable, programmable networks. x.comÂ
Arista Networks is expensive against its earnings at about 69 times trailing and 41 times next year's, while the industry usually gets 18 times. Eighteen times next year's estimated $4.84 per share, give or take 12%, puts fair value at about $76.62-$97.52, so the $199.42 price sits 105% above the high end, and the forward read already leans on a forecast 66% above trailing earnings. This is a levels-only screen with no fundamental work. x.comÂ
Arista Networks could attract institutions that missed the optical rally, because it trades at cheaper multiples than other networking names. It was left behind in the latest optical surge, yet the viability of linear pluggable optics is still questionable and Arista retains a massive traditional Ethernet business. The stock is strong, about a point from its all-time high, and widely followed on the Street. x.comÂ
Pluggable optics aren't going anywhere, which is good for Arista Networks. The shares are about to break out to a new all-time high. x.comÂ
Arista Networks is an AI name that has not yet gone parabolic, so it may have one more high, around $200, before the price runs too far ahead of fundamentals. It is a solid 30% grower facing margin headwinds from supply bottlenecks, and its valuation is rich versus its two-year average but not aggressively so. x.comÂ
Arista Networks stands to benefit as Nvidia's earnings showed networking is the next leg up in AI spending. x.comÂ
