Arista Networks (ANET +4.43%) has its first $3 billion quarter. The networking company reported second-quarter revenue of $3.036 billion on Tuesday evening, up 37.7% year over year, while non-GAAP (adjusted) earnings per share climbed about 40% to $1.02.
Investors didn't wait long to reward it. Shares, which closed Tuesday at $190.51, pointed sharply higher in pre-market trading Wednesday as of this writing -- above their previous 52-week high of $194.35. That would put the stock at its highest level in at least a year if the gain holds into the regular session.
Arista sells the high-speed switches and routing platforms that move data inside artificial intelligence (AI) data centers, making it arguably one of the purest ways to invest in AI networking. So a milestone quarter here says something about the whole trade. Here's what it means -- and why I'm not chasing the stock this morning.
Image source: Getty Images.
The growth keeps accelerating
The quarter's growth rate wasn't just big. It was faster than the quarter before. Arista's revenue rose about 35% year over year in the first quarter of 2026, then 37.7% in the second. The second quarter's total also came in 12.1% above the first quarter's -- growth stacking on growth.
And the trend stretches back further, since revenue grew 28.6% in all of 2025, to $9.0 billion.
The guidance says the acceleration isn't over, either. For the third quarter, management guided to revenue of approximately $3.3 billion (another step up of about 9% from the second quarter). It also expects a non-GAAP operating margin of 48% to 49% and non-GAAP earnings per share of $1.06 to $1.08 for the period.
Better still, management raised its full-year revenue outlook on the earnings call to about $12.6 billion, which would be roughly 40% growth. It also held its goal of at least $3.5 billion of AI fabrics revenue this year and said its Etherlink AI platforms have now passed 100 cumulative customers.
"As we deliver our first $3 billion quarter in Q2 2026, it is clear that our Arista 2.0 platform strategy is compelling," CEO Jayshree Ullal said in the earnings release.
Demand, in short, is not the question.
Two numbers worth a closer look
Two figures in the report deserve more attention than they'll get this morning. The first is gross margin. Arista's non-GAAP gross margin was 63.4% in the quarter, down from 65.6% a year ago. GAAP gross margin told the same story, at 62.9% versus 65.2%.
Management has pointed to higher component costs as it adds manufacturing capacity to keep up with demand.
To the company's credit, profitability further down the income statement held up anyway. GAAP operating margin actually expanded year over year, from 44.7% to 45.4%. However, a two-point slide in gross margin during a demand boom is worth watching. I'd expect pricing power to look its best right about now.
The second figure is customer concentration. Microsoft accounted for 26% of Arista's 2025 revenue, and Meta Platforms another 16%, according to the company's annual filing. That's 42% of the business from two buyers. Arista's "Cloud and AI Titans" customer group together made up about 48% of revenue.
In other words, the AI networking trade runs through a handful of hyperscale budgets. Those relationships have powered the acceleration. But a budget shift at either company could show up in Arista's results fast.
NYSE: ANET
Key Data Points
Neither of those numbers spoiled the quarter. Both matter for what the stock is worth, though.
At Tuesday's close, the stock's price-to-earnings ratio sat near 60, or about 42 on a forward basis. If the pre-market gain holds, that forward figure moves closer to 48. To justify a price like that, Arista would need roughly 40% growth to persist well beyond 2026 while the margin slide stops, with nearly half the revenue base riding on two customers' spending plans. Some premium is fair for growth like this. The debate is how big.
So, is Arista stock a buy after its milestone quarter?
The business could hardly be executing better, and the raised outlook suggests the boom has room left this year. But at the pre-market price, the growth stock is asking to be paid today for years of results it hasn't delivered yet. So, I'm not buying. But if shares give back a chunk of Wednesday's move over the coming weeks, I'd take another look.
