Amid a new IT upgrade cycle, data center and networking hardware firm Arista Networks (ANET 3.67%) is back in growth mode. While it was once known as a high-flying growth stock, this time around Arista looks more like a reasonable value, especially after its first-quarter 2021 earnings update was released on Tuesday. 

The chip shortage takes a small toll

Arista's Q1 financials continued the rebound the company started late in 2020 after a slow couple of years. Revenue was nearly $668 million, a 28% year-over-year increase, and free cash flow was also up 29% to $248 million. Management said to expect sales to increase about another 27% year over year in the second quarter to at least $675 million. If Arista continues on this track, it's on pace to exceed its all-time-high sales record from back in 2019.

Someone working on the equipment inside a data center.

Image source: Getty Images.

In spite of the strong showing, Q1 wasn't perfect. As with other tech hardware companies, Arista is being affected by the global chip shortage, driven by both healthy customer demand as data centers and networks get updated and also supply constraints from Arista's contract manufacturing partners. CEO Jayshree Ullal said on the earnings call that the chip supply has never been so constrained for the company. Specifically, some order lead times for certain components are a whole year out. Ullal continued by saying that the "supply chain will remain a pain point for the balance of this year as a result of all these shortages." 

While manufacturing shortfalls amid the pandemic have meant Arista has left some sales on the table this quarter, there's another way to look at this problem. Arista isn't alone in dealing with the global supply shortfall, so it's unlikely customers will simply shift their purchasing to one of its competitors. Instead, they're going to have to plan their projects accordingly and wait patiently. This creates a nice backlog of orders for Arista that could help it remain in strong growth mode well into next year. 

Plus, new networking technology like 400G will begin shipping in the second half of this year to help businesses' data centers handle the increased flow of information they're experiencing. With its strong portfolio of solutions spanning hardware itself, data center management, and security software, Arista is well-positioned to capture plenty of new customers this year and next. 

Why Arista stock is a top buy

In spite of its supply issues, Arista stock is on the cusp of another run higher. Cloud computing is a secular trend that is showing no signs of slowing down, and though Arista was hit by first the U.S.-China trade war and then the pandemic, its growth story is far from over. 

After the last update, Arista trades for 32 times trailing 12-month free cash flow -- a metric that will improve this year as the company laps depressed financial results from the worst of the pandemic lockdowns last spring and summer. It's always developing new use cases for its product and software portfolio with customers and is well-positioned for further expansion. The balance sheet showed cash and equivalents of $3.03 billion and no debt at the end of March. Management said to expect growth rates to decelerate headed into the second half of 2021, but to nevertheless anticipate full-year financials to be substantially higher than last year.

This small data center design and management firm is a top play on the booming cloud computing market. With growth back in double digits again, Arista Networks stock still looks like a long-term value right now.