Arista Networks is the IBD Stock Of The Day as the computer networking firm forms a flat base making it actionable. Arista stock has climbed 18% in 2024 and 81% over the past year.
On the stock market today, ANET stock fell 2.2% to close at 277.73. Arista stock holds an entry point of 292.66 from the flat base.
From a technical view, Arista stock found support at its 50-day moving average this week. That's a bullish signal.
Similar to chipmaker Nvidia, Arista has been viewed as a play on artificial intelligence investments by technology companies and cloud computing 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 valuation, one issue is how much AI-driven gear orders will re-accelerate sales growth in 2025. Arista management has forecast $750 million in AI-related sales for 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. Microsoft is the biggest investor in startup OpenAI. In November 2022, OpenAI launched its ChatGPT internet search software.
ChatGPT is part of a wave of generative AI technologies that could roil a host of industries by creating text, images, video and computer programming code on their own.
Oracle and Alphabet's Google are new Arista customers, analysts say.
A rival of Cisco Systems, Arista has been gaining ground in the so-called enterprise market — large companies, government agencies and educational institutions.
Revenue Growth Slows
"Enterprise up-ticked in Q4 2023 and is now close to 40% of revenue by our math as Arista continues to execute on share gains and new product offerings, addressing a $30 billion enterprise segment including campus and routing," said KeyBanc Capital analyst Thomas Blakey in a recent report. "Arista's AI endeavors are in early innings with trials in 2023 and pilots in 2024 ramping to production in 2025."
Excluding investments in AI infrastructure, one issue for Arista stock is that cloud computing giants are spending less on data center gear.
Arista's revenue boomed more than 48% in 2022 as Facebook and others increased data center spending. In 2023, revenue climbed 34%.
For 2024, analysts polled by FactSet currently model sales growth of only 12% to $6.6 billion. In 2025, analysts expect 15% sales growth to $7.59 billion.
For the three months ended Dec. 31, Arista earnings popped 48% to $2.08 per share. Lower taxes boosted profit. Also, analysts estimated Arista earnings per share of $1.70 on an adjusted basis.
Arista Stock Technical Ratings
Aside from backbone switches, Arista also sells Ethernet devices built into computer networks. In July, Arista joined with Cisco, Hewlett Packard Enterprise and other companies to form the Ultra Ethernet Consortium.
Further, the group is backing a new computer networking standard. Meanwhile, the consortium expects standards-based products to be available in 2024.
Also, ANET stock owns a Composite Rating of 98 out of a best-possible 99, according to IBD Stock Checkup.
ANET stock has an Accumulation/Distribution Rating of B. 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 X, formerly Twitter @reinhardtk_tech for updates on artificial intelligence, cybersecurity and cloud computing.
