Big tech companies say they plan to spend over $700 billion on capital expenditures this year, most of which will go toward building and outfitting data centers for artificial intelligence (AI) training and inference. A huge portion of that spending will go toward buying GPUs and custom AI accelerator chips, and many of the biggest semiconductor stocks have seen a boost from the hyperscalers' spending plans.
But a lot more goes into a data center than chips. Another key component is networking equipment. The area may be somewhat overlooked amid the hype around chip stocks, and one of the leading companies in the space, Arista Networks (ANET +2.28%), has traded sideways over the last six months. Investors can currently pick up shares for less than $150 each, and it looks like a no-brainer buy right now.
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Speeding toward the market lead
The networking speed requirements for large language model training and inference are significantly higher than for traditional cloud computing. With huge amounts of data moving from server to server, network congestion means expensive AI accelerator chips are left sitting idle or running at less than their maximum capacity. To get the most out of their investments in servers, AI data centers need high-speed networking.
Arista has established itself as the leader in high-speed networking equipment, overtaking Cisco Systems in the last few years. Its market share of Ethernet switches with speeds of 100-gigabits-per-second and faster reached 39% last year. And the market for high-speed networking equipment is set to explode over the next five years. Management shared estimates from Dell'Oro that the market for data center Ethernet switches will grow from $20 billion in 2024 to $100 billion by 2030, with the growth coming entirely from high-speed networking equipment.
Arista is poised to continue taking share of that growing market in 2026 and beyond. It's maintained its best-in-class performance at high speeds as it rolls out new and faster equipment. What's more, its software is highly programmable and adaptable to specific data center needs, enabling big tech companies to get more out of Arista's high-end equipment.
Management increased its 2026 revenue growth outlook alongside its fourth-quarter earnings release. It now expects a 25% increase to its top line versus its previous expectations of 20% growth. Artificial intelligence spending is one of the most significant driving forces behind that revenue growth, and management set a goal for AI-related revenue to more than double to $3.25 billion this year.
NYSE: ANET
Key Data Points
With the stock trading around $133 per share, its forward price-earnings ratio now sits just below 43. But with the market size of Arista's biggest growth driver expected to expand fivefold by the end of the decade, there's a lot of growth yet to come for the company. Analysts see another 20% jump in revenue and earnings per share in 2027, and that growth can continue through the end of the decade.
As such, its valuation appears fair given the company's growth potential for its bottom line. Investors with $150 to invest in an excellent AI stock (or any amount, really) should consider Arista Networks.
