Arista Networks, Inc. ANET has lost 12.7% over the past six months compared with the industry’s decline of 2.3%. It has underperformed its peers like Juniper Networks, Inc. JNPR and Cisco Systems, Inc. CSCO.

Six-Month ANET Stock Price Performance

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What Ails ANET?

Arista has historically recorded high operating costs owing to a rise in headcount, new product introduction costs and higher variable compensation expenditures. Total operating expenses were $431.3 million in fourth-quarter 2024, up from $359.3 million a year ago. Research & development (R&D) costs rose to $285 million from $211.5 million, while sales and marketing expenses increased to $110.9 million from $105.5 million. Selling, general & administrative and R&D expenses witnessed a compound annual growth rate of 22% from 2013 to 2024. This has eroded its margins. Competitive pricing pressures from rivals have further dented its profitability. 

Arista continues to derive a substantial portion of its revenues from a limited number of large customers, leading to high customer concentration. In addition, efforts to develop new technologies and products that address emerging technological trends, evolving industry standards and changing end-customer needs increase operating costs. Moreover, the redesigning of products and their supply chain mechanism has eroded margins. The company is witnessing increased demand, but there are lingering supply bottlenecks for advanced products. As such, when Arista increases orders for these components and tries to build up inventory, it blocks working capital.

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ANET Focusing on Arista 2.0 Strategy

Arista continues to profit from the expanding cloud networking market, which is led by a 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.

The Arista 2.0 strategy is resonating well with customers, with its modern networking platforms being foundational for transformation from silos to centers of data. The company boasts a comprehensive portfolio with the right network architecture for client-to-campus data center cloud and AI (artificial intelligence) networking backed by three guiding principles. These include the 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.

ANET’s Portfolio Strength Lends Support

Arista is benefiting from strong momentum and diversification across its top verticals and product lines, as well as improved market demand supported by a flexible business model and solid cash flow. As more business enterprises transition to the cloud, the company is well-poised for growth in data-driven cloud networking business with proactive platforms and predictive operations.

It holds a leadership position in 100-gigabit Ethernet switching share in port for the high-speed data center segment. Arista is increasingly gaining market traction in 200- and 400-gig high-performance switching products. In addition, the company offers one of the broadest product lines of data center and campus Ethernet switches and routers in the industry. It provides routing and switching platforms with industry-leading capacity, low latency, port density and power efficiency. The company also innovates in areas such as deep packet buffers, embedded optics and reversible cooling.

Arista 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. The versatility of Arista’s unified software stack across various use cases, including WAN routing and campus and data center infrastructure, sets it apart from other competitors in the industry. 

Arista has made several additions to its multi-cloud and cloud-native software product family with CloudEOS Edge. It has introduced new cognitive Wi-Fi software that delivers intelligent application identification, automated troubleshooting and location services. This supports video conferencing applications like Google Hangouts, Microsoft Teams and Zoom. The acquisition of Awake Security, a Network Detection and Response platform provider that combines AI with human expertise to autonomously hunt and respond to insider and external threats, has expanded its cognitive campus portfolio with new platforms. These include the 750 Series modular chassis and the 720 Series 96 port fixed switch. Arista has also announced unified edge innovations across wired and wireless networks for its Cognitive Campus Edge portfolio for Enterprise Workspaces and an enterprise-grade Software-as-a-Service offering for the flagship CloudVision platform.

Estimate Revision Trend of ANET

Earnings estimates for Arista for 2025 have climbed 21.9% to $2.56 over the past year, while the same for 2026 has increased 29.2% to $3.01. The positive estimate revision depicts optimism about the stock’s growth potential.
 

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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. Solid traction from the Arista 2.0 strategy is a major tailwind. An uptrend in estimate revision further portrays positive investor sentiments. 

However, margin woes amid high selling, general & administrative and R&D costs and elevated customer inventory levels weigh on its bottom line. Although ANET is currently witnessing a downslide owing to challenging macroeconomic conditions, investors are likely to profit in the long run if they bet on this stock.

The stock delivered a trailing four-quarter average earnings surprise of 12.9%. Arista currently carries a Zacks Rank #2 (Buy). 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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