Leveraging a software-driven, data-centric approach that helps customers build their cloud architecture, Arista Networks, Inc. ANET has surged 90.7% over the past year compared with the industry’s growth of 79.1%. It has also outperformed its peers like Juniper Networks, Inc. JNPR and Cisco Systems, Inc. CSCO over this period.

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 is well positioned 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, JNPR, CSCO Stock One-Year Price Performance

Image Source: Zacks Investment Research

ANET Rides on Portfolio Strength

Arista holds a leadership position in 100-gigabit Ethernet switching share in port for the high-speed data center segment. It is increasingly gaining market traction in 200-and-400-gig high-performance switching products. 

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. This, in turn, has translated into solid revenue growth for the company over the years.

Cloud Traction Buoys ANET

Arista continues to benefit from the expanding cloud networking market, which is driven by the strong demand for scalable infrastructure. 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. 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.

With customers deploying transformative cloud networking solutions, the company has announced several additions to its multi-cloud and cloud-native software product family with CloudEOS Edge. It has introduced cognitive Wi-Fi software that delivers intelligent application identification, automated troubleshooting and location services that support video conferencing applications like Microsoft Teams and Zoom.

Earnings Estimate Revision Trend of ANET

Earnings estimates for Arista for 2024 have moved up 21% to $8.70 over the past year, while the same for 2025 has increased 19.4% to $9.55. The positive estimate revision depicts optimism about the stock’s growth potential.

Image Source: Zacks Investment Research

Eroding Margins Hurt ANET

Arista continues to enhance its existing product line and develop new technologies and products that address emerging technological trends, evolving industry standards and changing end-customer needs. This often increases 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 is blocking working capital.

Key Stock Valuation Metric of ANET

From a valuation standpoint, ANET shares appears to be trading at a premium relative to the industry and is trading well above its mean. Going by the price/book ratio, the company shares currently trade at 13.93, higher than 6.85 for the industry and the stock’s mean of 8.49.

Image Source: Zacks Investment Research

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. 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. It also trades at a premium valuation and investors can wait for a better entry point to capitalize on its long-term fundamentals. With a Zacks Rank #3 (Hold), Arista appears to be treading the middle path and investors could be better off exercising caution. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

Cisco Systems, Inc. (CSCO) : Free Stock Analysis Report

Juniper Networks, Inc. (JNPR) : Free Stock Analysis Report

Arista Networks, Inc. (ANET) : Free Stock Analysis Report

To read this article on Zacks.com click here.

Zacks Investment Research