Despite reporting third-quarter results that beat analyst expectations across the board, shares of artificial intelligence (AI)-focused networking provider Arista Networks (ANET 7.13%) slumped on Wednesday. By 11:35 a.m. ET, the stock was down about 7.1%, according to data provided by S&P Global Market Intelligence.
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Arista had a strong quarter, but guidance may have disappointed
Arista reported third-quarter revenue of $2.308 billion, up 27.5% year over year and slightly higher than the average analyst estimate. Adjusted earnings per share came in at $0.75, up from $0.60 in the prior-year period and $0.04 higher than analyst expectations. "We are proud to have delivered 25% non-GAAP EPS growth in this quarter, a reflection not only of strong demand, but also of the disciplined execution of our strategic roadmap," said Arista CFO Chantelle Breithaupt.
Arista is benefiting from booming demand for AI infrastructure. The company's high-speed networking technology is a perfect match for AI data centers, and it counts many of the largest cloud computing companies as customers.
However, while buildouts of AI data centers are ramping up, Arista's guidance may be giving investors pause. Arista expects to generate between $2.3 billion and $2.4 billion in revenue in the fourth quarter, which represents year-over-year growth of about 22% at the midpoint. This expected slowdown could be what's driving the stock lower, especially considering the volatility in AI stocks recently, as some well-known investors warn of a bubble.
While Arista performed well in the third quarter, investors may have been looking for more optimistic guidance.
NYSE: ANET
Key Data Points
Is Arista Networks stock a buy?
Based on analyst estimates for 2025 adjusted earnings per share, Arista stock trades at a price-to-earnings ratio of about 50. That's a pricey valuation, given the company's slowing growth.
Arista is heavily exposed to the risk of an AI bubble popping, and another risk comes from customer concentration. Microsoft and Meta Platforms accounted for 35% of revenue combined in 2024, so any pullback from either would have an outsize impact. Arista is still growing at a double-digit pace, but the valuation is a reason for concern.
