If your goal is to get rich on nothing but an average income, then good news! It's possible. Plenty of people surprised themselves by becoming millionaires despite having jobs not exactly known for being wealth-building. The key of course is owning the right stocks at the right time, or more specifically, holding them for the right length of time. The longer you hold a great pick, the more likely you are to reap above-average gains.
With that as the backdrop, millionaire-minded investors may want to consider adding Arista Networks (ANET -1.46%) to their portfolio sooner than later. Although shares are priced uncomfortably high following an impressive two-year run-up, there's plenty more upside ahead for patient investors. Here's why.
The bull case is rooted in what makes Arista different
Not everyone will initially agree with that argument. The stock's 240% advance over the course of the past couple of years left it priced at a hefty 46 times this year's expected earnings, and within sight of analysts' current consensus target of $120.46 per share. Most of its upside has already been realized, it seems.
When one takes a step back and looks at the bigger detailed picture, though, it becomes clear that this ticker's run-up has likely only just begun.
But first things first. What's Arista Networks? Just as the name suggests, it makes and markets networking technologies, competing with the likes of Cisco and Juniper Networks.
There are a couple of critical differences between Arista and the other key players in this space, however. One of them is Arista's Extensible Operating System (or EOS) that makes most of its networking hardware work.
At first blush it's a seemingly meaningless detail. All switches and routers work one way or another. End users don't necessarily care how they function.
Except, technology managers increasingly do care how their equipment functions -- simply because they need all of it to seamlessly work together, and they need to be able to customize how it works for their particular institution. Being programmable as well as modular (not to mention installed on most of its hardware), Arista's EOS offers something that companies like Juniper and Cisco can't.
And the other unique attribute? Arista Networks makes some of the world's highest-performance, lowest-latency switches and routers, making it a preferred provider for data center operators, and AI data center operators in particular.
These two seemingly minor details are making a world of difference, and will continue to do so well into the foreseeable future.
Rising tide
Although the advent of artificial intelligence is obviously game-changing, it wouldn't be inaccurate to suggest the industry didn't know precisely what it was doing in its earliest days. It simply knew it needed to start with ultra-fast processors most likely made by Nvidia.
With that piece of the puzzle being mostly figured out, however, engineers are now increasingly recognizing where other bottlenecks exist. As it turns out, connecting thousands of processors can also slow things down if these connection technologies don't deliver digital data as quickly as it's being created.
Enter Arista's Etherlink portfolio, which is blazing fast, and capable of self-solving problems AI architects weren't even thinking about just a few years back. These tools also allow for a high degree of visibility and observability, allowing system managers to better understand and then adjust what their platforms are doing.
Arista Networks is also leveraging the power of artificial intelligence as much as it's making AI more powerful. For instance, its Cognitive WiFi tech utilizes artificial intelligence/machine learning to improve the overall user experience by identifying, diagnosing, and fixing problems rather than letting them fester.
There's long-term growth on both fronts too. Industry research firm Market.us believes the global AI infrastructure market itself is set to grow at an average annual pace of more than 28% through 2033 Analysts are calling for Arista's projected 2024 top-line growth of nearly 19% to be repeated this year, with a similar growth pace expected the year after that.
Data source: StockAnalysis.com. Chart by author.
Of course, helping drive and smooth out this growth is all of Arista's other networking equipment that may be out of the AI realm, but is still just as necessary to the tech world.
Arista's the real deal, despite the premium price
But this stock's steep cost? That's a fair concern. Nobody likes to pay a premium for anything when cheaper alternatives are available.
Except, it's a mistake to believe expensive stocks eventually underperform. Some of the market's most rewarding stocks including Nvidia, Amazon, and Tesla have been overvalued for years on end, yet continued to charge higher despite their frothy prices. Arista Networks looks like one of these names, plowing through all the valuation doubts simply because the underlying opportunity is just that compelling.
As for making you a millionaire, obviously it would take a decent-sized initial stake now to get you to a seven-figure sum down the road. You also don't want to invest the entirety of your money in a single stock -- especially an aggressive-growth one like this. Although the opportunity is real, the tech industry can turn on a dime when a company introduces the right breakthrough development. Just ask Blockbuster, or Polaroid, or IBM.
Arista seems largely immune to that degree of disruption anytime soon, though. It's simply too difficult for a rival to mimic what it's already created, and then work around this company's few-hundred patents.
