Company Reports

We raise our fair value estimate for Arista Networks to $195 per share from $160, behind our higher forecast for the firm’s long-term growth. Specifically, we have raised our growth expectations for the overall high-speed data center switching market, due mostly to surging artificial intelligence investments. We believe Arista will capture a rising share of this rapidly growing market as it boasts unmatched performance in our view, which also contributes to our wide moat rating. Arista’s good fourth-quarter results and first-quarter guidance align with our updated growth forecast, as does its goal of midteens revenue growth through 2027. The market saw first-quarter guidance as conservative in light of Arista’s opportunity for high-speed AI switching, causing a 6% selloff afterhours. We continue to believe expectations priced into Arista stock are lofty, and we still see shares as overvalued against our new valuation, even after trading down.

We view Arista Networks as the technology leader in high-speed switching for enterprise networking. We expect Arista to maintain its top market of high-speed ports above 100 gigabits and for it to augment its share in lower speeds and campus applications where it has historically been less penetrated. In our view, Arista’s software gives it a structural and durable competitive advantage over competitors in winning new customers, both in the cloud and in the enterprise. We believe this software-led approach provides the firm with a wide economic moat.

We maintain our $160 fair value estimate for shares of wide-moat Arista Networks after a positive and informative 2023 analyst day. Arista provided a 2027 financial model that largely agreed with our existing forecasts. Management highlighted continuity in Arista’s successful strategy, focusing on high-speed hardware and transparent and efficient software to differentiate and win placements in customers. We liked in-depth discussions surrounding artificial intelligence and how Arista’s portfolio is implemented in large AI clusters. Shares dipped 6% afterhours following the session, which we view mostly as a coming back to earth after a 20% rise since Arista’s bullish earnings call less than two weeks prior. We agree with the market that Arista has a ripe opportunity in clouds, enterprises, and AI applications, but we continue to see valuation as challenging.

We view Arista Networks as the technology leader in high-speed switching for enterprise networking. We expect Arista to maintain its top market of high-speed ports above 100 gigabits and for it to augment its share in lower speeds and campus applications where it has historically been less penetrated. In our view, Arista’s software gives it a structural and durable competitive advantage over competitors in winning new customers, both in the cloud and in the enterprise. We believe this software-led approach provides the firm with a wide economic moat.

We raise our fair value estimate for shares of wide-moat Arista Networks to $160, from $150, after the firm’s third-quarter results and fourth-quarter guidance beat our expectations. Arista is putting together an impressive year of results in 2023, reflecting market share gains in the enterprise market and ongoing cloud titan spending driven by artificial intelligence buildouts. We see Arista as the preferred choice for the highest-speed networks with its hardware and software design prowess, allowing it to be a beneficiary of cloud AI spending and reflecting its wide economic moat. Nevertheless, we continue to find valuation challenging and recommend investors wait for a pullback in this high-quality stock.

We view Arista Networks as the technology leader in high-speed switching for enterprise networking. We expect Arista to maintain its top market of high-speed ports above 100 gigabits and for it to augment its share in lower speeds and campus applications where it has historically been less penetrated. In our view, Arista’s software gives it a structural and durable competitive advantage over competitors in winning new customers, both in the cloud and in the enterprise. We believe this software-led approach provides the firm with a wide economic moat.

We view Arista Networks as the technology leader in high-speed switching for enterprise networking. We expect Arista to maintain its top market of high-speed ports above 100 gigabits and for it to augment its share in lower speeds and campus applications where it has historically been less penetrated. In our view, Arista’s software gives it a structural and durable competitive advantage over competitors in winning new customers, both in the cloud and in the enterprise. We believe this software-led approach provides the firm with a wide economic moat.

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.

We raise our fair value estimate for wide-moat Arista Networks to $140 per share, from $130. Arista reported first-quarter sales and operating margin ahead of management guidance, but our valuation bump comes primarily from upward revisions to our longer-term growth assumptions. Despite a strong quarter, Arista shares sold off as much as 8% after the print, in our view likely due to concerns over cloud digestion. We don’t share these concerns in the short term and don’t interpret any of management’s commentary as worrisome. In fact, Arista modestly raised its full-year sales guidance, and we continue to expect it to eclipse this figure. Despite our contrarian fair value upgrade following the quarter, we see shares as fully valued.

We view Arista Networks as the technology leader in high-speed switching for enterprise networking. We expect Arista to maintain its top market of high-speed ports above 100 gigabits and for it to augment its share in lower speeds and campus applications where it has historically been less penetrated. In our view, Arista’s software gives it a structural and durable competitive advantage over competitors in winning new customers, both in the cloud and in the enterprise. We believe this software-led approach provides the firm with a wide economic moat.

We maintain our $130 fair value estimate for wide-moat Arista Networks after a terrific fourth quarter. Arista beat our expectations soundly in the quarter, but reiterated guidance for 2023 that aligns with our model. Arista’s 2022 was a banner year for sales into cloud customers like Meta Platforms and Microsoft, and the company also showed continued progress encroaching on the adjacent campus market. We see Arista’s broad-based success reflecting its differentiated, software-led approach that in our view creates intangible assets and a wide economic moat. Supply constraints remain a factor into 2023, but we aren’t worried about Arista’s ability to produce good results. We see shares as fairly valued.

We view Arista Networks as the technology leader in high-speed switching for enterprise networking. We expect Arista to maintain its top market of high-speed ports above 100 gigabits and for it to augment its share in lower speeds and campus applications where it has historically been less penetrated. In our view, Arista’s software gives it a structural and durable competitive advantage over competitors in winning new customers, both in the cloud and in the enterprise. We believe this software-led approach provides the firm with a wide economic moat.

We maintain our $130 fair value estimate for wide-moat Arista Networks after its 2022 analyst day. In our view, Arista’s plans laid out a continuation of its existing strategy that has carved it a wide economic moat, headlined by its highly differentiated software. We liked hearing about plans to enter new adjacent markets like wide-area networking, but will only get concrete details next year. Arista’s new medium-term financial targets largely aligned with our existing forecast, but for stronger short-term sales and weaker short-term profitability that offset our valuation. We continue to see Arista as the technology leader in high-speed networking, and are happy with the firm’s evolving, but consistent software-led strategy. Shares rose 6% afterhours on strong financial targets and now sit right at our fair value estimate.

We maintain our $130 fair value estimate for wide-moat Arista Networks after it reported third-quarter results above our expectations. Arista’s largest cloud customers are maintaining high levels of demand and generating torrid top-line growth in 2022. At the same time, supply constraints continue to limit its ability to meet demand and are hamstringing profitability. We expect cloud spending to stay strong through 2023, but for supply constraints to hamper Arista’s ability to meet demand at other customers in the short term. Long-term, we continue to believe that Arista’s disruptive, software-led approach will gain share across its served markets. We see shares as close to fairly valued.

We raise our fair value estimate for Arista Networks to $130 per share from $115 previously and upgrade the firm’s economic moat rating to wide from narrow. We view shares as undervalued, as we are more optimistic about Arista’s ability to continue taking share across both the cloud and the enterprise and fend off competition both from Cisco and ambitious new entrants. We modestly raise our short- and long-term forecasts for sales growth via share gains. In addition, we maintain our positive moat trend rating, Exemplary capital allocation rating, and High Uncertainty Rating.

We view Arista Networks as the technology leader in high-speed switching for enterprise networking. We expect Arista to maintain its top market of high-speed ports above 100 gigabits and for it to augment its share in lower speeds and campus applications where it has historically been less penetrated. In our view, Arista’s software gives it a structural and durable competitive advantage over competitors in winning new customers, both in the cloud and in the enterprise. We believe this software-led approach provides the firm with a wide economic moat.

We are increasing our fair value estimate for narrow-moat Arista Networks to $115 per share from $105 after its second-quarter results surpassed our expectations for revenue growth and earnings. Our increase is rooted in stronger near-term growth and expansion within larger enterprise customers. We view Arista’s shares, which gained over 6% in after hours trading to $126, as slightly overvalued. Despite supply chain constraints and increased component costs, Arista saw strong demand across all areas of its business, temporarily allaying concerns of IT spending lulls from the current networking demand environment.

Arista Networks has solidified its market presence through data center switching and software-based networking innovation, and we believe customers will remain loyal to the firm's Extensible Operating System software and peripheral products. Arista's initial growth came from high-frequency trading firms that found value in its low-latency switches and EOS. By remaining at the forefront of switching and routing speeds, Arista became a key networking supplier to giant cloud operators, service providers, and enterprises.

Arista Networks has solidified its market presence through data center switching and software-based networking innovation, and we anticipate that customers will remain loyal to the firm's Extensible Operating System software and peripheral products. Arista's initial growth came from high-frequency trading firms that found value in its low-latency switches and EOS. By remaining at the forefront of switching and routing speeds, Arista became a key networking supplier to giant cloud operators, service providers, and enterprises.

We are maintaining our $105 fair value estimate for narrow-moat Arista Networks after its first-quarter results exceeded our expectations for revenue growth and adjusted earnings. Shares were flat after Arista reported, which we attribute to a strong second-quarter growth target being offset by supply chain and increased costs concerns. We view shares as slightly overvalued due to being cautious regarding Arista's ability to durably migrate less sophisticated customers to its solutions against incumbents with deep rooted channel presences. Nonetheless, we still expect Arista to be a top vendor for networking needs in leading-edge data center operations and for its solutions to remain mission critical for sizable operators.