Shares of Arista Networks (NYSE: ANET) slipped despite the cloud computer networking switch maker reporting solid fourth quarter results and increasing its full-year 2025 guidance. The stock is now down more than 5% year to date, as of this writing.
Let’s take a close look at Arista’s results and guidance to see if this is a good opportunity to buy the stock.
While Arista turned in strong results, investors were anxious that white-box competitors could be taking share of its major customers. White-box equipment refers to generic, off-the-shelf switches. The company has long seen white-box competition, and it has always looked to differentiate itself through its software. On its earnings call, it said with artificial intelligence (AI) infrastructure that it differentiates itself through AI visibility, real-time analytics, personal queuing, congestion control, and, most importantly, a smart system upgrade that can give an alternate connection if a graphic processing unit (GPU) is in trouble.
The company is very dependent on hyperscalers, or companies with massive data center operations, which it calls Cloud Titans. Microsoft is its largest customer, accounting for around 20% of revenue, while Meta Platforms accounts for just under 15%. Oracle, meanwhile, is a recent customer to this list.
Investors appeared mostly concerned with Meta, as 2024 revenue from the company fell about 17%. This could be backed out as 21% of Arista’s $5.9 billion in revenue from 2023 came from Meta ($1.2 billion), while 14.6% of its $7 billion in 2024 revenue ($1 billion) came from the company. However, this decline came after the end of a pretty large 400G (gigabit) switching upgrade at Meta that ended in 2023. The 400G refers to ethernet speed.
Arista now has more than 1,000 400G customers and expects to begin seeing 800G customers this year with back-end GPU clusters.
Overall, Arista saw its Q4 revenue jump 25% to $1.93 billion, while adjusted EPS also climbed 25% to $0.63. That topped analyst expectations for revenue of $1.9 billion and adjusted EPS of $0.57.
Notably, deferred revenue rose by $280 million sequentially to $2.79 billion, including a $150 million increase for products. Changes in deferred revenue can be an indication of future revenue growth.
The company said that AI and data center products made up 65% of its total revenue and that its market share in high-performance switching was more than 40%. Network adjacencies, such as routing and cognitive AI-driven campus solutions, brought in about 18% of revenue, while subscription-based network services earned about 17% of revenue.
Arista ended the quarter with $8.3 billion in cash and marketable securities after buying back $423.6 million worth of stock at an average price of $77.13 per share during the year. It generated $3.7 billion of free cash flow in the year.
Looking ahead, Arista forecast revenue to grow by 17% to around $8.2 billion. That was above its initial forecast for 15% to 17% growth. The company continues to expect AI revenue to be around $1.5 billion, with $750 million in AI back-end clusters. It noted that three large customers will roll out 100,000 GPU clusters this year.
For Q1, the company projected revenue to range from $1.93 billion to $1.97 billion, representing growth of 23% to 25%.
Arista tends to be conservative with guidance, so it’s not a surprise that the company didn’t raise its forecast by more, which it seems investors wanted. The 2024 decline in Meta revenue, meanwhile, comes on the back of some very strong prior growth related to switching upgrades. There isn’t a big indication that the company is losing any market share with its big customers.
Meanwhile, its strong deferred revenue increase should be a good sign that the guidance is conservative and that the company will continue to raise its expectations throughout the year. It is projecting a strong Q1, so this is not a backloaded forecast. Meanwhile, with capital expenditures (capex) for AI infrastructure increasing this year, including big spending from Microsoft and Meta, Arista should be in good shape to capitalize on this growth.
Trading at a forward-price-to-earnings (P/E) ratio of 41 times 2025 analysts’ estimates, Arista’s stock is still not cheap, even after the pullback.
The stock’s valuation looks elevated, given its projected growth. As such, I would not be a buyer on the dip, as I’d like to see a more pronounced pullback or higher revenue growth before jumping into the stock.
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Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Geoffrey Seiler has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Arista Networks, Meta Platforms, Microsoft, and Oracle. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
Arista Network Shares Slump Despite Upbeat Outlook Fueled by AI. Should Investors Buy the Stock on the Dip? was originally published by The Motley Fool
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