Arista Networks Inc, based in the US, specializes in data-driven networking solutions that connect clients to cloud environments for large data centers, campuses, and routing applications. The company's platforms enhance availability, agility, automation, analytics, and security through a sophisticated network operating system. Arista's product portfolio is divided into three main categories: Core, Cognitive Adjacencies, and Network Software and Services. The Core category includes high-speed data center and cloud networking systems, featuring advanced artificial intelligence Ethernet switching platforms.

Cognitive Adjacencies encompass campus wired and wireless products, as well as advanced routing systems designed for core routing, edge routing, multi-cloud, and wide area networking scenarios. The Network Software and Services category offers a suite of premium software solutions that utilize Arista's Extensible Operating System (EOS) to deliver comprehensive orchestration, automation, analytics, network monitoring, and security. Arista Networks has approximately 4,412 employees and primarily operates in the US, which accounts for 81% of its business. The company is also present in Europe, the Middle East, and Africa (10%), the Asia Pacific region (8%), and other areas (1%).

Q1 25 performance raises target prices for stock

The company reported an impressive start to 2025, with revenue and EBIT increasing 27.6% and 30.2% y/y, respectively in Q1 25, driven by strong demand for networking hardware. As a result, revenue reached $2,004m in the quarter, while EBIT was $859m, with margins expanding by 85bp to 42.9%. Net income rose 27.6% to $814m. Notably, this marks the seventh consecutive quarter in which the company has exceeded analysts' revenue expectations, surpassing estimates by 54.9% in Q1 25. As a result, Evercore ISI has raised its target price for the share from $105 to $110.

Arista Networks has benefited from significant growth over the past decade, increasing its port share in the networking market from 4.9% in 2012 to 29.2% in 2024. This substantial gain comes at the expense of industry leader Cisco, which saw a decline from 71.4% to 20.1% over the same period. The driving factor behind Arista's revenue growth can be credited to its emphasis on high-performance cloud networking solutions, bolstered by its Extensible Operating System (EOS) which offers unparalleled programmability and reliability. With strong demand from enterprise customers, Arista's innovative product line includes efficient data center and campus Ethernet switches, enabling it to capture market share despite facing competitive pressures and rising operational costs.

Improved gearing 

Arista Networks posted an impressive revenue CAGR of 33.4% over FY 21-24, reaching $7bn. EBIT outpaced revenue at a CAGR of 47.1% over the same period, reaching $2.9bn in FY 24, with margins expanding from 31.4% to 42.1%. Net income therefore rose at a CAGR of 50.3% to $2.8bn in FY 24.

Cash from operations increased from $1bn to $3.7bn over the same period. Cash and cash equivalent rose from $621m to $2,760m in FY 24. Moreover, total debt decreased from $76.8m to $59.6m in FY 24. This resulted in the company's debt to equity improving from 1.9% to 0.6%. In addition, ROE also increased from 23% in FY 21 to 33% in FY 24.

In comparison, Cisco Systems, Inc., a local peer, reported a lower revenue CAGR of 2.6% over the past three years, reaching $53.8bn in FY 24. EBIT dropped at a CAGR of minus 1.7% to $13.1bn in FY 24.

Looking ahead, analysts anticipate revenue CAGR of 18.6% over FY 24-27, reaching $11.7bn. EBIT CAGR of 17.3% to $5.4bn, with a margin of 46.1% in FY 27. In addition, analysts estimate a net profit CAGR of 16.3% to $4.5bn with a margin of 38.5% in FY 27, with EPS expected to increase to $3.4 in FY 27 from $2.2 in FY 24. Likewise, analysts estimate EBIT CAGR of 5.4% and net profit to grow at a CAGR of 8.1% for Cisco Systems.

Strong performance trajectory

Over the past year, the company's stock has delivered robust returns of approximately 16.8%, reflecting a positive fundamental trajectory. However, in comparison, Cisco Systems delivered higher returns of about 46%.

Arista Networks is currently trading at a P/E of 40.9x, based on the FY 25 estimated EPS of $2.4, which is higher than its 3-year historical average of 37.9x and that of Cisco Systems (26.8x). Likewise, in terms of EV/EBIT, the company is currently trading at 45.7x, based on the FY 25 estimated EBIT of $2,511m, which is higher than its 3-year historical average of 28.2x and Cisco Systems’ valuation of 14.8x.

Arista Networks is largely liked by 28 analysts who monitor it; 16 have ‘Buy’ ratings, six have ‘Outperform’ ratings, while six have ‘Hold’ ratings for an average target price of $105.6. However, the recent run-up in its share price means that the target price has already been reached, implying just 6.3% upside potential from its current price.

Overall, the company continues to post strong growth and market leadership, driven by its innovative product offerings and strategic enhancements. The company's consistent performance and ability to exceed analysts' expectations highlight its robust fundamentals and competitive edge. With a positive outlook from analysts and ongoing demand for high-performance networking solutions, Arista Networks is well-positioned for future success and remains a compelling investment opportunity in the technology sector.

However, the company faces intense competition, customer concentration risks, and regulatory and economic challenges. The competitive landscape pressures profit margins and requires innovation, while reliance on major clients exposes the company to demand fluctuations. Regulatory changes and economic conditions can impact costs and market access, and dependence on key sectors poses additional risks.