Arista Networks was downgraded Tuesday by an analyst who cited concerns about slower enterprise technology spending that could weigh down a "secular winner in a cyclical space."
Piper Sandler analyst James Fish downgraded Arista stock from overweight to neutral. On the stock market today, ANET stock dipped 1.5% to close at 191.86.
"Despite our downgrade, we see fundamental upside into Q3 and still view Arista as a 'secular winner in a cyclical space,' with the best relative exposure across verticals, networking markets, customers and largest AI potential given the high-end Ethernet share," Fish said in a report.
ANET Stock: AI Play?
He added: "We believe the stock is already embedding the goal of 'double-digit' (revenue) growth in 2024, despite cloud digestion, limited visibility, and enterprise budget concerns."
Arista stock last week joined the IBD Leaderboard. Arista stock rebounded from its 10-week moving average. Leaderboard is IBD's curated list of leading stocks that stand out on technical and fundamental metrics.
Arista sells computer network switches that speed up communications in internet data centers. The data centers ratchet up computing horsepower when demand surges.
Similar to chipmaker Nvidia, ANET stock has been viewed as a play on artificial intelligence investments by tech giants. Amid the rise of generative AI, internet data centers will need more network bandwidth.
Arista Stock: Meta, Microsoft Biggest Customers
Arista's biggest customers are Facebook-parent Meta Platforms and Microsoft.
Arista's revenue boomed more than 48% in 2022. In 2023, ANET stock analysts predict revenue growth of 31%. In 2024, analysts currently model sales growth of only 11%.
But AI-driven demand could re-accelerated revenue growth in 2025, analysts say. "We think Arista stock reflects AI benefits at these levels, which likely won't show into numbers until at least second half of 2024," Fish said.
Follow Reinhardt Krause on X, formerly called Twitter, @reinhardtk_tech for updates on 5G wireless, artificial intelligence, cybersecurity and cloud computing.
