Arista Networks: Why the Market's Overlooking This AI Networking Powerhouse

The AI boom has everyone fixated on GPU makers and hyperscalers, but there’s a quiet player handling the backbone that makes it all work. Arista Networks (ANET) is the networking infrastructure that keeps massive AI clusters from collapsing under their own weight.

The Real Story: Ethernet Switches, Not Just Hype

Here’s what most investors miss: you can’t run large-scale AI without world-class networking. GPUs process data, but Arista’s high-speed Ethernet switches move it fast enough to matter. The company just posted its 19th consecutive record quarter with $2.3 billion in revenue (up 27.5% YoY) and $962.3 million in non-GAAP net income (up 25.1%).

These aren’t just impressive numbers—they’re validation of a fundamental industry shift. Hyperscalers are ditching proprietary InfiniBand networks for open-source Ethernet architecture. Arista is positioning itself as the standard-setter through initiatives like the Ultra Ethernet Consortium.

Why This Matters for CA and Beyond

The networking opportunity is enormous. Arista projects AI-related revenue hitting $1.5 billion in fiscal 2025 and jumping to $2.75 billion by 2026. The total addressable market? Over $100 billion in the next few years.

The company has already rolled out its 800-gigabit R4 Series switches, with the road map eventually leading to 1.6-terabit speeds. When the industry transitions from 400-gigabit to 800-gigabit networking, Arista will be one of the few vendors ready.

The Hyperscaler Advantage

Meta Platforms and Oracle aren’t just customers—they’re validation engines. Meta co-developed the Disaggregated Scheduled Fabric (DSF) architecture with Arista and is already migrating its AI training clusters to this setup. Evercore Research expects Arista to control roughly 30% of backend cloud networking spending over the next few years, with a meaningful chunk coming from Meta’s data center expansion.

Oracle is taking a similar path, opting for high-performance Ethernet and partnering with Arista as part of its Oracle Acceleron platform.

The Financial Profile Is Harder to Ignore

Non-GAAP gross margin sits at 65.2%, operating margin at 48.6%. That’s software-company-level profitability, not typical hardware margins. The balance sheet carries $10.1 billion in cash, and Q3 operations generated $1.3 billion in cash flow.

Management guidance points to 26-27% revenue growth in fiscal 2025 (hitting $8.87 billion at midpoint) and 20% growth in fiscal 2026 (reaching $10.65 billion). Beyond AI data centers, the enterprise campus segment contributes meaningfully, strengthened by the VeloCloud acquisition—which brought 20,000+ customers and production-proven SD-WAN technology.

The Valuation Disconnect

Arista trades at 47.5x trailing earnings, which looks expensive until you factor in the actual growth trajectory and margin profile. The stock tanked about 18% in the past month despite beating Q3 consensus estimates, partly because investors bet on even stronger guidance.

There’s also noise about Nvidia pushing into Ethernet with its Spectrum X platform and winning deals with Meta and Oracle. But here’s the thing: that’s not a threat, it’s confirmation that the entire industry is moving toward Ethernet. The market is massive enough for multiple winners.

The Bottom Line

Arista’s fundamentals are advancing faster than its stock price reflects. A 20%-plus growth rate over the next two years, combined with software-like margins and clear AI tailwinds, justifies the premium valuation. With recent weakness offering an entry point, this could be one of those situations where the market eventually catches up to the underlying business strength—and traders who recognize it early benefit accordingly.