Ricardo Pillai
3 min read
In This Article:
We came across a bullish thesis on Arista Networks Inc (ANET) on Substack by Nikotes. In this article, we will summarize the bulls’ thesis on ANET. Arista Networks Inc (ANET)'s share was trading at $87.27 as of May 8th. ANET’s trailing and forward P/E were 36.82 and 34.36 respectively according to Yahoo Finance.
Arista Networks (ANET) delivered a robust quarter, surpassing revenue expectations with a 27.9% YoY increase to $2.04 billion, above both their guidance and consensus estimates. This growth was primarily driven by strong performance in their product segment, which accounts for 82.9% of revenues, and services, which contributed 17.1%. North America remained the dominant contributor, accounting for 80% of revenues, while international markets contributed 20%. Notably, Arista's deferred revenue grew by 10.7% QoQ, reaching $3.1 billion, indicating strong future revenue visibility. The company's gross margin stood at an impressive 63.7%, while operating margins improved to 42.8%, showing healthy profitability. Adjusted EPS of $0.65 exceeded the consensus estimate of $0.59, reinforcing the company's operational strength. The company also demonstrated a shareholder-friendly approach, with $787 million in share repurchases during the quarter, and announced a new $1.5 billion buyback program in May.
Arista’s guidance for Q2 2025 suggests continued momentum, with revenue expected to reach $2.1 billion, slightly above consensus. The company is also projecting a modest decrease in gross margin, from 64% to a range of 60% to 62%, due to potential tariff impacts in the second half of 2025. Despite these challenges, Arista is confident in its ability to maintain strong margins through supply chain optimization and potential price increases. One of the key areas of focus for the company is AI, with management hinting at meaningful revenue ramp-up in the second half of 2025, although they are cautious in setting specific expectations. AI-related bookings have contributed significantly to the company’s growth, and Arista is positioning itself as a leader in AI-scale Ethernet networking, emphasizing the cost-effectiveness of Ethernet over NVIDIA’s InfiniBand.
The company's enterprise segment remains a growth engine, with a 20% YoY increase driven by demand from financial services, healthcare, and the public sector. While there are signs of recovery in the cloud market, the enterprise segment continues to demonstrate resilience, reducing dependency on hyperscale customers. Arista's campus and routing initiatives also showed progress, with notable gains in verticals such as financial services and education. As for competition, Arista’s differentiation lies in its software-first, cloud-native approach, which allows the company to compete effectively with hardware-focused rivals like Nvidia and Broadcom.
