Arista Networks: A Promising Investment for AI Trend

by Warren Seah

In the world of artificial intelligence (AI), investors seeking opportunities beyond Nvidia should take a closer look at Arista Networks. Exane BNP Paribas analyst Karl Ackerman has recently initiated coverage of Arista stock (ticker: ANET) with a Buy rating and a coveted “Top Pick” designation. With a target price of $210, Ackerman believes that Arista offers a potential upside of 19% from its current levels.

Arista has established itself as the market leader in high-speed networks for hyperscalers and large enterprises, according to Ackerman’s research note. As cloud giants continue to invest heavily in AI, the networking company is well-positioned to benefit in the years ahead. Notably, Arista already generates almost half of its revenue from major players like Microsoft (MSFT) and Meta Platforms (META).

When it comes to building data centers for generative AI applications, the need for immense computing power is evident, driving the demand for graphics processors from Nvidia. However, another critical component is networking gear that facilitates seamless communication among the various parts of the data center – precisely where Arista shines.

Acknowledging Arista’s potential, Ackerman projects impressive sales growth of 18% compound annual rate through 2025. He also expects earnings to surpass $8 per share, compared to the projected figure of approximately $6 in 2023. Notably, Ackerman’s earnings estimate for 2025 is about $1 per share higher than the Street consensus. Additionally, he predicts that the data center switch market will experience a robust growth rate of 34% compounded annually through 2025.

Investors seeking exposure to the AI trend should consider Arista Networks as a top contender. With its dominant position in high-speed networks and partnerships with industry giants, Arista is well-equipped to capitalize on the growing AI investments. Ackerman’s bullish outlook and strong financial projections make a compelling case for investing in this company.

Key Takeaways:

  • Arista Networks presents an attractive investment opportunity in the AI sector.
  • The company’s leadership in high-speed networks positions it well to benefit from the growing AI investments by major cloud players.
  • Arista already generates a significant portion of its revenue from partnerships with Microsoft and Meta Platforms.
  • The need for networking gear in data centers makes Arista a crucial player in enabling seamless communication among various components.
  • Analyst Karl Ackerman projects impressive sales growth and expects earnings to surpass $8 per share in the coming years.

Cisco Faces Challenges in Market Share Amidst Sales Declines

Leading market research analyst, Ackerman, recently initiated coverage of Cisco (CSCO) with an Underperform rating and a cautious $45 target price. Ackerman’s assessment highlights the potential for a 14% decrease in Cisco’s stock value. The vulnerability of Cisco’s market share in campus networks is the primary concern for Ackerman, as he predicts the company may experience double-digit sales declines by 2024.

Market Correction and Impact on Cisco’s Wireless Networks

Ackerman anticipates a market correction in wireless and wireless networks. He suggests that customers may pause their purchases in anticipation of the Wi-Fi 7 standard, which is set to roll out in 2025. This cautious buying behavior could adversely affect Cisco’s sales in the near future.

Shrinking Office Real Estate Portfolio and Impact on Enterprise Campus Networks

A recent survey conducted by CBRE, a commercial real estate firm, reveals that over half of the respondents plan to consolidate their U.S. office real estate portfolios in the next three years. This reduction in office space coupled with rising office vacancies may lead to diminished demand for enterprise campus networks. Ackerman points out that this challenging market dynamic could potentially impact up to 28% of Cisco’s sales. If enterprise routers and security products are taken into account, this figure could exceed 44% of the company’s sales. As a result, Ackerman projects a decline in Cisco’s revenue and profits at a mid-single-digit rate in calendar year 2024.

Juniper Networks Faces Similar Challenges in Campus Network Hardware

Ackerman also provides insight into Juniper Networks, assigning a Neutral rating and a $31 target price, just slightly higher than the current price. Like Cisco, Juniper Networks is likely to face slowing demand for campus network hardware. Additionally, Ackerman mentions that while Juniper may gain market share from Huawei in the long term, the overall opportunity is limited and possibly below $200 million.

Market Performance

In Thursday’s trading session, Arista experienced a slight decline of 0.7%, Juniper saw a 0.6% drop, and Cisco witnessed a modest increase of 0.3%.

You may also like

Leave a Comment