Arista Earnings: Great Results and Higher 2023 Guidance Drive Up Our Valuation

We raise our fair value estimate for shares of wide-moat Arista Networks to $150 from $140, after it beat our second-quarter expectations and raised its full-year outlook. Arista is benefiting from a year of strong networking spending, particularly at its large cloud and data center customers. Data center spending is Arista’s largest revenue driver, and despite a lowered capital spending outlook at Meta, we believe Microsoft and its other large customers are supporting strong results in 2023. We continue to view Arista as the leader in high-speed data center switching, with a wide moat driven by its marquee EOS software. We believe artificial intelligence is incremental to Arista’s existing growth opportunity, and will contribute to results in coming years. However, we still see shares out of reach, and recommend investors wait for a pullback.