What happened
Shares of Arista Networks (ANET 0.90%) popped by 9.3% on Thursday even though it didn't report any news. Rather, the news driving the bump came from Meta Platforms (META 0.03%).
So what
Meta Platforms closed the session down by 24.6%, trading at lows not seen since 2016. And that plunge occurred because the company just dropped a bomb on investors: Its expenses will go up dramatically as it continues to invest in its metaverse ambitions.
However, in a conference call with investors, Meta Platforms' management broke out some specific numbers regarding those capital expenditure plans. From now through the end of 2023, the company plans to spend $34 billion to $39 billion, specifically investing in data centers, network infrastructure, and servers. And those areas are Arista Networks' core competencies.
For perspective, Arista Networks generated about $3.5 billion in revenue over the past 12 months. Therefore, if it gets a meaningful percentage of this business from Meta Platforms, it would have a profound impact on Arista's financial results.
ANET Revenue (TTM) data by YCharts
Now what
The market's optimism is well-founded here. In times past, Meta Platforms accounted for a significant portion of Arista Networks' top line. In 2020 and 2021, the share of its revenue that Meta Platforms provided dipped below 10%. But the social media giant remains an important client and should logically increase its spending with the company in the coming year.
Put it all together, and Arista Networks could be in for a stellar 12 months. And given that it's now trading at one of its cheapest price-to-earnings valuations ever, the stock could be poised for market-beating gains. That said, investors will need to be comfortable with the company's customer concentration risk -- Meta Platforms could just as easily pull back on its spending, especially if it changes its mind about its metaverse plans.
