Arista Earnings: We Raise Our Long-Term Growth Forecast and Valuation, but Shares Remain Overpriced

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.