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Why Arista Networks Surged 21.1% in November

By Billy Duberstein – Dec 8, 2021 at 10:06AM

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The cloud-networking company had a blockbuster earnings report and rose even after a strong prior month.

What happened

Shares of Arista Networks (ANET -0.27%) rose 21.1% in November, according to data from S&P Global Market Intelligence. Last month's gains were all the more impressive, since the cloud-networking hardware provider had already risen 19.2% in October, and November proved to be a difficult month for many tech stocks.

Still, a strong earnings report and optimism over the metaverse fueled further gains.

Wires leading into networking switches.

Image source: Getty Images.

So what

In the third quarter of 2021, Arista grew revenue 23.7%; adjusted (non-GAAP) income grew 22.3% to $2.96. Both numbers handily beat analyst expectations. CEO Jayshree Ullal said in the press release:

We are experiencing strong demand for our pioneering client to cloud networking portfolio across all of our customer sectors. Despite a challenging supply chain environment, I am pleased with our delivery of another record quarter of Arista's financial results in Q3 2021.

In addition to solid earnings, management also announced a $1 billion share-repurchase authorization as well as a three-for-one stock split that took effect on November 18. While stock splits do not in and of themselves change the intrinsic value of each share, a lower per-share price could open up Arista to more retail investors who may not have much capital to invest.

Now what

Arista is a key supplier to Meta Platforms (META 0.85%), which recently announced its plan to make a massive investment in data centers next year to build out its vision for the metaverse. That will take lots of computing power and networking switches, so it's no wonder Arista has risen since that announcement.

Still, Arista now trades at 35 times next year's earnings estimates after its recent run, and the stock was recently downgraded by analysts at Morgan Stanley based on valuation concerns. So for the valuation-sensitive investor, it may be a good idea to watch from the sidelines. For those looking to make a longer-term play in high-quality companies in the metaverse, you may wish to add Arista to your "metaverse basket."

Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. Billy Duberstein owns Meta Platforms, Inc. and has the following options: short January 2022 $195 puts on Meta Platforms, Inc. His clients may own shares of the companies mentioned. The Motley Fool owns and recommends Arista Networks and Meta Platforms, Inc. The Motley Fool has a disclosure policy.

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