Arista Networks is the IBD Stock Of The Day as the computer networking firm trades just below a conventional buy point. ANET stock has climbed 46% in 2023 and surged on Arista's second-quarter earnings report.
Arista stock has been trading tightly since popping on the report. However, it's not a three-weeks-tight pattern because the stock has moved more than 1.5% on a weekly basis out of a consolidation.
On the stock market today, ANET stock rose 1.8% to 178.12. Arista stock holds an entry point of 178.36 from a consolidation.
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 computing power and network bandwidth.
For investors in ANET stock focused on its lofty valuation, one issue is whether AI-driven gear orders will re-accelerate sales growth in 2025.
ANET Stock: Meta, Microsoft Biggest Customers
Arista sells computer network switches that speed up communications among racks of computer servers packed into "hyperscale" data centers. These internet data centers are designed to ratchet up computing horsepower when demand surges.
Arista's biggest customers are Facebook-parent Meta Platforms and Microsoft.
Arista management is scheduled to appear at three financial conferences in the near term. They include a Rosenblatt conference on Aug. 23. Deutsche Bank follows on Aug. 31. Then, there's the Goldman Sachs Communacopia conference on Sept. 6.
Arista's revenue boomed more than 48% in 2022 as Facebook and others increased data center spending. In 2023, ANET stock analysts predict revenue growth of 31%. In 2024, analysts currently model sales growth of only 11%.
Arista's AI Outlook For 2025
On a conference call with Wall Street analysts Aug. 1, Arista said it does not expect meaningful AI revenue in 2024.
Following the June-quarter earnings call, ANET stock analyst Michael Ng from Goldman Sachs said in a note to clients: "More importantly, ANET provided a relatively transparent roadmap in its role as a supplier in generative AI networking infrastructure with 2023 a planning year with trials, leading to pilots in 2024, and then large cluster deployments in 2025."
Aside from backbone switches, Arista also sells Ethernet devices built into computer networks. In July, Arista joined with Cisco Systems, Hewlett Packard Enterprise and other companies to form the Ultra Ethernet Consortium.
The group is backing a new computer networking standard. Meanwhile, the consortium expects standards-based products to be available in 2024.
"Regarding AI, Arista continues to drive product improvements to position Ethernet as a strong competitive offering for networking within GPU clusters," William Blair analyst Sebastien Naji said in a note. "Arista is seeing trials within its cloud titan customers and expects more significant AI pilot deployments to start in 2024."
Arista Stock: Earnings Beat
Meanwhile, Arista's second-quarter earnings climbed 46% to $1.58 per share, topping estimates of $1.44 per share. Also, revenue jumped 39% to $1.46 billion vs. forecasts for $1.38 billion.
For the September quarter, Arista predicted revenue in a range of $1.45 billion to $1.5 billion. That topped estimates of $1.39 billion.
Further, ANET stock owns a Relative Strength Rating of 93 out of a best-possible 99, according to IBD Stock Checkup.
ANET stock has an Accumulation/Distribution Rating of B-minus. That rating analyzes price and volume changes in a stock over the past 13 weeks of trading. Also, its current rating indicates more funds are buying than selling.
The rating, on an A+ to E scale, measures institutional buying and selling in a stock. A+ signifies heavy institutional buying; E means heavy selling. Think of the C grade as neutral.
Follow Reinhardt Krause on Twitter @reinhardtk_tech for updates on 5G wireless, artificial intelligence, cybersecurity and cloud computing.
