Arista Earnings: We Raise Our Valuation to $270 From $195 With a Strong AI Forecast

We raise our fair value estimate for wide-moat Arista Networks to $270 per share from $195 as we raise our forecast for strong and long-term growth for the firm arising from generative artificial intelligence networking. We believe Arista will significantly benefit from generative AI spending, resulting from its best-of-breed high-speed Ethernet switches. We expect Arista to drive and benefit from a transition toward Ethernet—and away from Nvidia’s Infiniband technology—in generative AI networks over the next five years. We forecast generative AI spending to augment growth in high-speed data center switching and for Arista to maintain a strong market share. Our updated forecast assumes that management’s long-term growth target through 2027 is conservative. We believe Arista management guides conservatively, and raising its full-year guidance for 2024 after one quarter gives credence to this view. Shares rose by more than 6% after-hours when Arista raised its full-year guidance. We see shares as fairly valued and believe the market is adequately pricing in the AI opportunity and agrees with our view on conservative guidance.