Arista Networks (ANET +2.37%) develops and markets networking solutions, including ultra-fast Ethernet switches and routers. However, its biggest selling point, at least in my opinion, is its Extensible Operating System (EOS), which comes bundled with its networking equipment.
In a nutshell, Arista's switches use a single unified code base that is modular, programmable, and can be integrated into cloud-based platforms. This is what makes its products so attractive to AI data center builders and hyperscalers: Every facet of the network, from network speed to traffic management to telemetry and automation, can be controlled from a safe, secure, and extremely stable environment.
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However, recently, there has been a sell-off in the AI space that has affected heavy-hitters like Nvidia, Alphabet, and Meta. And it doesn't help that analysts like Michael Burry are also betting against the sector.
So is the AI boom approaching its peak, or will the likes of Arista and other AI infrastructure companies continue benefiting from the explosive expansion?
I think it's the latter -- with a caveat.
What do the third-quarter results tell us?
Arista's third-quarter financials showcased impressive 28% year-over-year revenue growth to $2.3 billion, while diluted earnings per share increased from $0.58 to $0.67.
Meanwhile, management's guidance is for fourth-quarter revenue to land between $2.3 billion and $2.4 billion. That would be close to flat quarter over quarter but around 19% higher year over year.
So, it's fair to say that accelerating spending in AI infrastructure is impacting Arista's top line.
NYSE: ANET
Key Data Points
Rocket or dud?
But does the stock price fully reflect the optimism? And, more importantly, is it a good time to buy?
Right now, Arista stock is trading around $125, down from the all-time high of $165 it set in late October.
The stock is still up 13% year to date and 25% in the last 52 weeks. However, the longer time frame paints a much stronger trend, with five-year returns of 642%.
At the current price, the stock is trading around 55 times its earnings. That's quite rich compared to the rest of the tech sector's average of 39 times. Some might balk at such a high valuation, but remember, some AI tech companies are currently trading at higher multiples without having Arista's solid position in the AI infrastructure space.
Arista's moat: Ultra-fast switches, headache-free platform
Arista's biggest strength is the degree to which it is entrenched in the booming AI sector, which is comparable even to the positions of Nvidia and AMD.
Its 400G/800G switches offer extremely low latency and massive bandwidth throughput that can help maintain performance even with heavy and high-frequency workloads.
Meanwhile, EOS allows developers to manage their entire networks without a hitch, with features including downtime-free patching and upgrades, built-in automatic and programmability through APIs, and real-time network monitoring. Speed and reliability are essential in the AI space, and Arista offers both in an attractive and easy-to-manage package.
A word of warning
However, I do want to point out again that Arista's growth is tied directly to AI infrastructure spending, and we're already seeing some pushback on that front. Alphabet CEO Sundar Pichai has gone on record to say that the enormous amount of capital expenditures flowing into AI has "an element of irrationality."
Meta also took some flak when it increased its AI spending forecast in the last leg of 2025. Considering its position in the AI infrastructure space, any pullback in spending there may hit Arista disproportionately.
Verdict
There's no end in sight for AI spending, and products like those made by Arista are necessary for the ecosystem to function. As a result, I think Arista offers an attractive opportunity for those who want to invest in AI and can buy and hold for at least three to five years.
