Arista Networks, Inc. ANET and Cisco Systems, Inc. CSCO are two of the leading players in the global networking industry. Arista 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.   

On the other hand, Cisco is the largest player in the networking space. The company has a strong presence in the router and switch market. It has retained a leadership position in WLAN and Ethernet switching and is rapidly expanding its presence in the network security domain. Cisco provides Next-Generation Network Routers that transport data, voice and video information from one IP network to another. 

With a diversified portfolio of cloud networking solutions for data centers and cloud computing environments, both Arista and Cisco have the wherewithal to cater to the evolving demands of business enterprises. Let us delve a little deeper into the companies’ competitive dynamics to understand which of the two is relatively better placed in the industry.

The Case for Arista

Arista holds a leadership position in 100-gigabit Ethernet switches and is increasingly gaining market traction in 200-and-400-gig high-performance switching products. It 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. 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. 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. 

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 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 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. Arista should benefit from its software-driven, data-centric approach that helps customers build their cloud architecture and enhance the cloud experience they offer their clients.

However, Arista remains plagued by high operating costs. Total operating expenses in the fourth quarter of 2024 increased around 20% to $431.3 million, owing to a rise in headcount, new product introduction costs and higher variable compensation expenditures. Selling, general & administrative and R&D expenses increased at a CAGR of 23.1% from 2013 to 2023. Moreover, the redesigning of products and their supply chain mechanism has eroded margins. Although the company is witnessing increased demand, there are lingering supply bottlenecks for advanced products. Therefore, it is increasing orders for these components and trying to build up inventory, which is blocking working capital.

The Case for Cisco

Cisco is expanding its Agentic AI footprint with the introduction of Webex AI Agent, Cisco AI Assistant for Webex Contact Center, Workflow Automation in Cisco AI Assistant for Webex, AI Capabilities in Webex Control Hub and Webex Calling Customer Assist. Its strategy of infusing AI across security and collaboration platforms and developing agentic capabilities across the portfolio is a key catalyst for improving customer experience. The launch of Renewals Agent, an Agentic AI-driven solution co-developed with Mistral, and a new Assistant to help customers digitize and de-risk Network Change Management have been noteworthy developments in this regard.

Cisco is expanding its portfolio with the unveiling of AI factory architecture developed in collaboration with NVIDIA Corporation NVDA. In late February, Cisco inked an expanded partnership with NVIDIA, under which the companies plan to offer solutions that help build AI-ready data center networks. Cisco Secure AI Factory with NVIDIA is founded on the NVIDIA Spectrum-X Ethernet networking platform. The NVIDIA-based CSCO AI POD product, which comprises hardware and software, is gaining traction. The launch of 800 gig Nexus switches based on Cisco’s 51.2 terabit Silicon One chip is expected to drive orders from AI-based cloud customers.
 
However, Cisco has been forced to offer discounts and deals in response to stiff competition from other players like Arista and Juniper Networks Inc. JNPR in the Ethernet switch and router market. Cisco’s competitors are revamping their product lines with faster and power-efficient products. Although the edge business remains strong, the competitive pressure at the core remains intense and is likely to hurt profitability. Moreover, Cisco’s near-term prospects are likely to suffer from declining new orders, hurting top-line growth.

How Do Zacks Estimates Compare for ANET & CSCO?

The Zacks Consensus Estimate for Arista’s 2025 sales and EPS implies a year-over-year growth of 18% and 8.8%, respectively. The EPS estimates have been trending northward over the past 60 days.

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The Zacks Consensus Estimate for Cisco’s 2025 sales implies a year-over-year growth of 4.9%, while that for EPS implies a decline of 0.3%. The EPS estimates have been trending northward over the past 60 days.

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Price Performance & Valuation of ANET & CSCO

Over the past year, Arista has gained 12.1% compared with the industry’s growth of 7.3%. Cisco has gained 19.8% over the same period.

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Cisco looks more attractive than Arista from a valuation standpoint. Going by the price/earnings ratio, Cisco’s shares currently trade at 14.76 forward earnings, significantly lower than 28.5 for Arista.

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ANET or CSCO: Which is a Better Pick?

Arista carries a Zacks Rank #3 (Hold), while Cisco carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Both companies expect their sales and profits to improve in 2025. Arista has shown steady revenue and EPS growth for years, while Cisco has been facing a bumpy road. However, with a superior Zacks Rank, better price performance and attractive valuation metrics, Cisco appears to be a better investment option at the moment.

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This article originally published on Zacks Investment Research (zacks.com).

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