As the artificial intelligence (AI) wave grows into a tsunami, Arista Networks (ANET), an often-overlooked business in the data center ecosystem, is emerging as one of the big winners. Arista stock has soared 32.58% year-to-date, outperforming most of the trillion-dollar AI giants while also receiving a “Strong Buy” rating from Wall Street. Let’s find out why this under-the-radar AI stock deserves more attention from investors hungry for exposure to AI infrastructure.
Arista Networks is a cloud networking business that develops high-speed switches, routers, and software for modern data centers, particularly those used by cloud giants, AI workloads, and enterprise customers. Arista’s primary products include ultra-fast Ethernet switches, GPU clusters, and software like CloudVision and EOS for managing, automating, and monitoring big, complex networks.
AI at the Core of Arista’s Growth
In the second quarter, Arista showed why it has become one of the most important, yet often overlooked, players in the AI-driven data center revolution. Total revenue increased 30.4% year-over-year to $2.2 billion, exceeding its own target by $100 million. Software and service renewals accounted for 16.3% of sales, highlighting the growing recurring revenue component of the business.
Gross margin increased to 65.6%, above expectations, with diluted EPS rising roughly 37.7% year on year to $0.73. International markets accounted for 21.8% of revenue, with the Americas remaining the core at 78.2%. On the balance sheet, Arista completed the second quarter with $8.8 billion in cash and investments. The company repurchased $196 million of its stock during the quarter, leaving $1.4 billion available under its current buyback authorization.
Raising the Bar for Growth
AI networking is the single most crucial factor driving Arista’s newfound momentum. Data centers are developing into AI centers, and Arista is strategically aligned with this change. Arista’s flagship EtherLink portfolio and the EOS operating system are gaining traction. Management stressed that customers spend billions of dollars on Nvidia’s (NVDA) H100 or Advanced Micro Device’s (AMD) MI300 accelerators, and Arista’s networking fabric ensures that those investments perform to their full potential. Arista had no footprint in back-end AI networking three years ago but is now on track to generate $750 million in back-end AI networking revenue in 2025.
Arista plans to generate more than $1.5 billion in AI networking revenue this year, and management anticipates continued growth as AI workloads develop. To broaden its reach, Arista recently bought VeloCloud, a leader in software-defined WAN (SD-WAN). This acquisition extends Arista’s portfolio beyond the data center, including dispersed branch and campus networks.
Importantly, Arista boosted its full-year guidance despite the fact that the acquisition will have no material impact on 2025 revenues. The company’s revenue was expected to climb by 17% to $8.2 billion this year. Now, with demand accelerating, the company expects 25% growth, raising the target to $8.75 billion, in line with consensus estimates.
Looking forward, Arista sees several growth opportunities. Arista’s AI networking segment has grown from zero in 2022 to $1.5 billion in 2025, making it the crown jewel. As AI models grow in size and distribution, networking will become increasingly important. Agentic AI, as well as campus and WAN development, presents further potential for growth. Management predicts $10 billion in revenue by 2026, which aligns with analysts’ projections.
As CEO Jayshree Ullal put it, Arista sees itself building “a truly transformational networking company addressing a massive total available market.” The AI era, she emphasized, represents a “once-in-a-lifetime opportunity.”
Analysts predict earnings to increase by 23.7% in 2025, followed by 16.4% growth in 2026. Trading at 45 times forward 26 earnings, Arista’s stock seems expensive. However, William Blair analyst Sebastien Naji believes the company’s premium valuation is justifiable, citing significant data center investments and a continuously rising enterprise base. Naji also stated that Arista’s proactive enterprise strategy, emphasized by new COO Todd Nightingale’s emphasis on direct sales and channel expansion, as well as the acquisition of VeloCloud, has increased its reach, particularly among managed service providers.
What Is the Target Price for ANET Stock?
Analysts have assigned a mean target price of $163.31 for ANET shares, implying a 9.1% increase from current levels. Furthermore, its high target price of $185 means that the stock may rise by 23.6% over the next 12 months. Overall, the stock is a “Strong Buy,” with 17 out of the 24 analysts covering the stock strongly bullish about it. Additionally, two rate it a “Moderate Buy,” and five recommend a “Hold.”
Arista Networks may not carry the same AI hype as Nvidia, but its role in the AI ecosystem is just as crucial. With rising demand, improved margins, a strong balance sheet, and a growing product portfolio, it is one of the best-positioned infrastructure plays in the AI era.
Source: barchart
