What: Shares of Arista Networks (ANET 4.18%) fell more than 10% Monday after Jefferies analyst George Notter issued a negative note and reduced his per-share price target for the cloud networking solutions specialist.
So what: Specifically, Notter reduced his price target on Arista shares from $52.50 to $40.25, representing a nearly 36% discount to yesterday's close. To justify his ongoing bearish stance, Notter stated conversations with several major Internet content providers, equipment vendors, and component suppliers indicates increasing momentum in Facebook's Open Compute Project movement, the stated goal of which is to "break open the black box of proprietary IT infrastructure to achieve greater choice, customization, and cost savings." And this, according to Notter, "makes us much more concerned about Arista's business at major customers."
Now what: To be fair, Jefferies has maintained its "underperform" rating on Arista Networks stock since initiating its coverage in late 2014. And today's note arrives three weeks after Arista stock popped when the company turned in particularly strong fourth-quarter 2015 results. At the time, Arista CEO Jayshree Ullal described her company's year as "spectacular" and driven by customers' "rapid acceptance [of] Arista's programmable cloud networking" solution. What's more, Arista offered guidance for revenue to increase nearly 32% year over year in the current quarter, which was well above Wall Street's consensus estimates. So while it is certainly something long-term investors should keep an eye on, Arista's most recent performance seems to indicate it isn't suffering from a shift to white-box IT infrastructure just yet.