Arista Networks Sees Promising Growth in AI-Driven Data Centers

Arista Networks, a leading networking-infrastructure provider, is experiencing a surge in its stock price after reporting better-than-expected financial results for the September quarter. The company’s revenue and profits have surpassed Street estimates, and its financial guidance for the December quarter has exceeded analyst expectations.

This positive outlook has been reinforced by a bullish call from Morgan Stanley analyst Meta Marshall. Marshall believes that Arista will benefit greatly from AI-driven data-center buildouts, which she sees as a $25 billion market. In a research note, Marshall upgraded her rating on Arista shares from Equal Weight to Overweight and raised her stock price target to $220, up from $185.

As evidence of Arista’s potential, Marshall highlights the company’s advantage in Ethernet networking, particularly in data centers. By replacing Infiniband, a competing networking standard, Arista stands to capture a significant market share. This opportunity is most pronounced among cloud providers, where Arista already boasts strong relationships. Notably, Microsoft and Meta Platforms are the company’s largest customers, contributing over 40% of its revenue in the previous fiscal year.

Marshall predicts that sales of AI networking hardware will experience a compound annual growth rate of 19% until 2027. Within this expanding market, she expects Arista to be a leading “share gainer.” Despite the stock’s premium valuation, Marshall asserts that Arista’s unique positioning in the space justifies this premium.

Overall, the outlook for Arista Networks appears highly favorable due to its expertise in AI networking and the growing demand for data-center buildouts. As the company continues to capitalize on these trends, investors can expect the stock’s upward trajectory to continue.