AI-Infused Earnings Propel Arista Networks to Sector Leadership

October 25, 2023 at 09:12 AM EDT

Arista Networks stock price outlook

While tech titans Nvidia Corp. (NASDAQ: NVDA) and Apple Inc. (NASDAQ: AAPL) languish below their 50-day moving averages, cloud networking software maker Arista Networks Inc. (NYSE: ANET) joins Meta Platforms Inc. (NASDAQ: META) and Alphabet Inc. (NASDAQ: GOOGL) as tech titans holding above that line.

If you look at the Arista Networks chart, you’ll see a cup-with-handle base with a buy point north of $198.46.

The stock is up 8.67% in the past three months, and up 53.70% year-to-date.

It’s the leading price performer within the computer networking sub-industry, which is also home to Cisco Systems Inc. (NASDAQ: CSCO), Extreme Networks Inc. (NASDAQ: EXTR) and Juniper Networks Inc. (NYSE: JNPR).

If you look at MarketBeat’s Arista Networks institutional ownership data, you’ll see the reason for that: Buyers have been in the driver’s seat. In the past 12 months, 706 institutional investors accounted for $9.95 billion in total inflows, versus 460 institutional investors accounting for $4.79 billion in outflows.

Outperforming Tech Sector Stocks

With a market capitalization of $59.10 billion, Arista is part of the S&P 500, tracked within the Technology Select Sector SPDR Fund (NYSEARCA: XLK). Arista is outperforming S&P technology stocks on a three-month and year-to-date basis.

Arista Networks is a prominent company in the computer networking industry, mainly known for its high-performance cloud networking solutions.

The company specializes in hardware, software, and network management tools for data centers and cloud computing environments. Its core offerings include Ethernet switches and routing platforms.

Arista Networks integrates AI-driven technologies into its networking products. These help customers automate network functions, improve security, implement predictive analytics, and conduct other data optimization tasks.

Increasingly, those are functions that data centers and cloud services require.

Network Identity Service Aimed at Healthcare

Those functional tasks are performed in a range of industries.

For example, in April, the company rolled out its AI-driven network identity service for enterprise security and IT operations. The company specifically cited the healthcare industry as a potential user base.

Arista’s earnings growth has ranged from 21% to 72% in the past eight quarters and came in at 46% most recently. You can track that growth trajectory using MarketBeat’s Arista Networks earnings data.

Revenue grew between 24% and 57% during that time. Its three-year revenue growth rate is 35%, while its three-year earnings growth rate is 39%.

AI has been the clear driver of performance for stocks like Nvidia, Alphabet and Microsoft Corp. (NASDAQ: MSFT), which has a large stake in ChatGPT. For cloud computing stocks like Arista, the connection hasn’t been as well publicized, but it’s very much a core driver.

Use Caution Ahead of Earnings

Anyone considering purchasing shares of Arista while it’s forming a potentially bullish base should consider: The company reports earnings on October 30 after the market’s close.

That means it’s wise to hold off. Even if the company issues a much-better-than-expected report and the stock takes off, that’s generally a signal that more gains are ahead. You usually don’t want to chase a stock higher, but buying a stock on a post-earnings rally is justified when strong performance signals investor confidence and growth potential.

Those big increases aren’t mom-and-pop investors adding a few shares; it’s institutional investors buying huge numbers of shares. That’s an additional reason investors should wait and see what happens after an earnings report, rather than potentially being swept away if the company surprises to the downside.

Analysts expect the company to earn $1.58 per share on revenue of $1.48 billion, which would be year-over-year increases.

Listen to the Whispers

However, Arista’s earnings data show the company has a long history of beating both top and bottom-line views. That means it’s a pretty good guess that it’s poised to do the same.

Analysts’ “whisper number” of $1.64 per share for the company’s earnings. A whisper number is an unofficial, often unpublished earnings estimate or projection used by some investors to anticipate a company's performance. It can be either higher or lower than the official Wall Street estimate.

In the context of a consistent history of beating Wall Street views, the higher whisper number is something to watch.

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AI-Infused Earnings Propel Arista Networks to Sector Leadership

Outperforming Tech Sector Stocks

Network Identity Service Aimed at Healthcare

Use Caution Ahead of Earnings

Listen to the Whispers

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