What happened

Shares of Arista Networks (ANET -0.02%) charged sharply higher Tuesday, spiking as much as 22.9%. As of 3:24 p.m. ET, the stock was still up 19%.

The catalyst that sent the high-speed networking solutions provider soaring was its quarterly results, generating record double-digit growth on both the top and bottom lines, which was far better than investors had hoped for.

So what

For the second quarter, Arista generated record revenue of $1.5 billion, an increase of 39% year over year and up 8% sequentially. This resulted in non-GAAP (adjusted) earnings per share (EPS) of $1.58, which jumped 46%. 

For context, analysts' consensus estimates were calling for revenue of $1.4 billion and EPS of $1.44, so Arista Networks cleared both bars with ease.

"Arista again achieves record revenue and profitability for Q2 2023," said Jayshree Ullal, president and CEO of Arista Networks. "Our customers now represent more than 75 million cumulative cloud networking ports."

The company is also positioning itself to succeed in the age of artificial intelligence (AI). In recent weeks, Arista Networks, along with many of the biggest names in AI and high-performance computing (HPC), banded together to form the Ultra Ethernet Consortium (UEC), with the goal of boosting Ethernet speeds to meet the increasing demands of AI workloads. 

Now what

Helping to propel the stock higher was management's robust outlook for the upcoming third quarter. The company is calling for revenue in a range of $1.45 billion to $1.5 billion, which would represent growth of 25% year over year at the midpoint. It's worth noting that management has historically issued conservative guidance, so the results could conceivably be better. Furthermore, Ullal said on the conference call that Arista is now expecting growth in excess of 30% annually, up from its previous forecast of 25%.

It's important to note that Arista's robust performance comes at a cost: The stock is currently selling for 9 times next year's earnings, which isn't exactly cheap. That said, the company is well positioned to ride the secular tailwinds of cloud computing and AI adoption. For my money, the stock is well worth the premium.