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Arista Surges 68% YTD: Can ANET Stock Gain From Cloud-Native Focus?
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Arista Networks, Inc. (ANET - Free Report) has witnessed a sharp ascent of 68.1% year to date compared with the industry’s growth of 58.2%. It has also outperformed its peers like Juniper Networks, Inc. (JNPR - Free Report) and Cisco Systems, Inc. (CSCO - Free Report) .
Arista continues to benefit from the expanding cloud networking market, which is driven 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.
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. This supports video conferencing applications like Microsoft Teams and Zoom.
YTD Share Price Performance
Image Source: Zacks Investment Research
Portfolio Strength: ANET's Key Growth Driver
Arista continues to benefit from strong momentum and diversification across its top verticals and product lines with an 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.
Robust Outlook for ANET
The company expects healthy demand trends in the remainder of 2024, backed by the strength of its existing portfolio and new product introductions. Arista presently supports more than 10,000 customers with a cumulative of 100 million ports deployed worldwide. The company expects healthy traction from Etherlink AI platforms launched during the second quarter of 2024 that are ultra-Ethernet consortium compatible, validating the migration from InfiniBand to Ethernet.
For the third quarter of 2024, management expects revenues in the range of $1.72-$1.75 billion owing to healthy growth momentum. Non-GAAP gross margin is estimated at 63-64% and non-GAAP operating margin is approximated at 44%.
Estimate Revision Trend
Earnings estimates for Arista for 2024 have climbed 16.9% to $8.24 over the past year, while the same for 2025 has increased 18% to $9.24. The positive estimate revision depicts optimism about the stock’s growth potential.
Image Source: Zacks Investment Research
ANET Plagued by Margin Woes
Despite healthy portfolio traction, 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 $397.6 million in second-quarter 2024, up from $354.1 million a year ago. Research & development (R&D) costs rose to $267.5 million from $229.7 million, while sales and marketing expenses increased to $104.4 million from $98 million. Selling, general & administrative and R&D expenses have witnessed a compound annual growth rate of 23.1% from 2013 to 2023. This has eroded its margins. Competitive pricing pressures from rivals have further dented its profitability.
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. Steady improvement in lead times and easing of supply-chain woes are major tailwinds. 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. With a Zacks Rank #3 (Hold), Arista appears to be treading in the middle of the road, and investors could be better off if they trade with caution. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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Arista Surges 68% YTD: Can ANET Stock Gain From Cloud-Native Focus?
Arista Networks, Inc. (ANET - Free Report) has witnessed a sharp ascent of 68.1% year to date compared with the industry’s growth of 58.2%. It has also outperformed its peers like Juniper Networks, Inc. (JNPR - Free Report) and Cisco Systems, Inc. (CSCO - Free Report) .
Arista continues to benefit from the expanding cloud networking market, which is driven 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.
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. This supports video conferencing applications like Microsoft Teams and Zoom.
YTD Share Price Performance
Image Source: Zacks Investment Research
Portfolio Strength: ANET's Key Growth Driver
Arista continues to benefit from strong momentum and diversification across its top verticals and product lines with an 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.
Robust Outlook for ANET
The company expects healthy demand trends in the remainder of 2024, backed by the strength of its existing portfolio and new product introductions. Arista presently supports more than 10,000 customers with a cumulative of 100 million ports deployed worldwide. The company expects healthy traction from Etherlink AI platforms launched during the second quarter of 2024 that are ultra-Ethernet consortium compatible, validating the migration from InfiniBand to Ethernet.
For the third quarter of 2024, management expects revenues in the range of $1.72-$1.75 billion owing to healthy growth momentum. Non-GAAP gross margin is estimated at 63-64% and non-GAAP operating margin is approximated at 44%.
Estimate Revision Trend
Earnings estimates for Arista for 2024 have climbed 16.9% to $8.24 over the past year, while the same for 2025 has increased 18% to $9.24. The positive estimate revision depicts optimism about the stock’s growth potential.
Image Source: Zacks Investment Research
ANET Plagued by Margin Woes
Despite healthy portfolio traction, 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 $397.6 million in second-quarter 2024, up from $354.1 million a year ago. Research & development (R&D) costs rose to $267.5 million from $229.7 million, while sales and marketing expenses increased to $104.4 million from $98 million. Selling, general & administrative and R&D expenses have witnessed a compound annual growth rate of 23.1% from 2013 to 2023. This has eroded its margins. Competitive pricing pressures from rivals have further dented its profitability.
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. Steady improvement in lead times and easing of supply-chain woes are major tailwinds. 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. With a Zacks Rank #3 (Hold), Arista appears to be treading in the middle of the road, and investors could be better off if they trade with caution. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.