In 2023, we covered Arista Networks 
ANET , calling it part of the internet’s "bedrock" but rating it a Hold due to valuation concerns. Since then, ANET has outperformed the S&P 500, proving our call wrong.
Recently, ANET’s stock has dipped alongside broader market declines. However, we believe the selloff presents a buying opportunity, given ANET’s strong positioning in AI and cloud growth. Here’s why:
1. Strong Growth Drivers
ANET’s revenue comes from three segments: Core (65%), Cognitive Adjacencies (18%), and Cognitive Network (17%). Its hardware (Ethernet switches, routers) and software (EOS) are critical for hyperscalers (48% of revenue), enterprises (35%), and providers (17%). With AI and cloud capex surging, ANET is well-positioned for sustained demand.
2. Best-in-Class Margins
ANET’s net margins have nearly doubled since 2020, reaching ~42% TTM. Operating leverage allows revenue growth to flow efficiently to the bottom line. While R&D spending must remain competitive, ANET’s high-margin business supports strong earnings.
3. Attractive Valuation
Despite premium multiples (14x sales, 35x earnings), ANET trades near 5-year lows relative to historical trends. If growth (projected ~20%) and margins hold, a re-rating toward its average P/E (~40x) could drive shares toward $100+.
Risks
- Customer concentration (Meta + Microsoft = 35% of revenue).
- Margin pressure if R&D spending lags.
- Multiple compression in a weak market.
Verdict: Buy
ANET’s growth, margins, and valuation make it compelling. While risks exist, the upside outweighs them.
Good luck out there!
ANET , calling it part of the internet’s "bedrock" but rating it a Hold due to valuation concerns. Since then, ANET has outperformed the S&P 500, proving our call wrong.Recently, ANET’s stock has dipped alongside broader market declines. However, we believe the selloff presents a buying opportunity, given ANET’s strong positioning in AI and cloud growth. Here’s why:
1. Strong Growth Drivers
ANET’s revenue comes from three segments: Core (65%), Cognitive Adjacencies (18%), and Cognitive Network (17%). Its hardware (Ethernet switches, routers) and software (EOS) are critical for hyperscalers (48% of revenue), enterprises (35%), and providers (17%). With AI and cloud capex surging, ANET is well-positioned for sustained demand.
2. Best-in-Class Margins
ANET’s net margins have nearly doubled since 2020, reaching ~42% TTM. Operating leverage allows revenue growth to flow efficiently to the bottom line. While R&D spending must remain competitive, ANET’s high-margin business supports strong earnings.
3. Attractive Valuation
Despite premium multiples (14x sales, 35x earnings), ANET trades near 5-year lows relative to historical trends. If growth (projected ~20%) and margins hold, a re-rating toward its average P/E (~40x) could drive shares toward $100+.
Risks
- Customer concentration (Meta + Microsoft = 35% of revenue).
- Margin pressure if R&D spending lags.
- Multiple compression in a weak market.
Verdict: Buy
ANET’s growth, margins, and valuation make it compelling. While risks exist, the upside outweighs them.
Good luck out there!
Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.
Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.