Here's our initial take on Arista Networks' (ANET 3.92%) fourth-quarter financial report.
| Metric | Q4 2023 | Q4 2024 | Change | vs. Expectations |
|---|---|---|---|---|
| Revenue | $1.54 billion | $1.93 billion | +25% | Beat |
| Adjusted earnings per share | $0.52 | $0.65 | 25% | Beat |
| Adjusted gross margin | 65.4% | 64.2% | -1.2 pps | n/a |
| Adjusted operating margin | 48.3% | 47% | -1.3 pps | n/a |
In the high-speed data center switch market, Arista is now officially king. The company surpassed Cisco Systems (CSCO -0.43%) last year in dollar-based and port-based market share, continuing a years-long ascendance. Booming demand from cloud computing giants investing in artificial intelligence (AI) infrastructure has been the driving force behind Arista's market share gains.
Arista reported solid fourth-quarter results to cap 2024. Revenue was up 25% year over year, and the company enjoyed a healthy adjusted gross margin of 64.2%. Operating cash flow nearly doubled in the fourth quarter, leading full-year operating cash flow to rise more than 80%.
Arista surpassed $7 billion of annual revenue in 2024, and it's targeting revenue of $8.2 billion in 2025. That works out to 17% growth, a slight slowdown compared to 2024's 19.5% growth rate. In the long run, the company sees its addressable market growing to $70 billion by 2028, driven by demand for ultra-fast data center switches.
Within that 2025 revenue outlook, Arista is targeting $750 million in campus revenue and $750 million in AI back-end revenue. AI back-end networking covers the hardware used to connect AI accelerators together within a data center.
Share prices of Arista were essentially unchanged in early after-hours trading soon after the fourth-quarter report was released. The company beat analyst estimates, but expectations may have been high enough to keep a lid on the stock. With the company expected high-teens revenue growth this year against a backdrop of a massive build-out of AI data centers by multiple tech giants, investors may have been expecting a bit more.
Arista estimates that up to 45% of its long-run revenue mix will come from cloud and AI giants. In fiscal 2023, Microsoft (MSFT 0.30%) and Meta Platforms (META -2.76%) alone accounted for roughly 39% of total revenue. As tech giants pour tens of billions of dollars into AI data centers, Arista's products are in high demand.
The downside to this revenue concentration is that Arista's growth is heavily dependent on the AI boom continuing unabated. Any pullback in AI-related spending, even from a single large customer, could greatly reduce Arista's growth rate. With that in mind, Arista is on track for another solid year in 2025, albeit with a slightly lower revenue growth rate.
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