Why Arista Networks Still Hasn't Caught Up to Market Expectations — A Networking Giant Emerging from the Shadows

The Undervalued Networking Backbone of AI Infrastructure

While investors flock to household names like Nvidia, Broadcom, and Advanced Micro Devices in the artificial intelligence race, they’re overlooking a critical player: Arista Networks (NYSE: ANET). Trading at 47.5 times trailing earnings, the stock appears expensive on the surface. Yet when you examine the company’s revenue growth trajectory and market positioning, Arista seems undervalued relative to the scale of opportunity ahead.

The numbers tell a compelling story. In Q3 fiscal 2025, Arista delivered its 19th consecutive record quarter, posting $2.3 billion in revenue with 27.5% year-over-year growth, while non-GAAP net income surged 25.1% to $962.3 million. These aren’t just impressive metrics—they signal a company that hasn’t yet caught up to investor recognition of its true potential.

The Architecture of Next-Generation AI Data Centers

The AI boom has forced hyperscalers to rethink data center infrastructure from the ground up. Building multi-petabit or gigawatt-scale facilities requires sophisticated multiplanar AI networks—essentially multiple parallel network layers that independently handle different data traffic streams. Without a robust networking layer, even the most powerful GPUs become bottlenecks.

Arista Networks has emerged as the vendor of choice for this challenge. Its high-performance, low-latency Ethernet switches and proprietary Extensible Operating System form the backbone of modern data center architectures. The company has also positioned itself at the forefront of industry standardization through its involvement in the Ultra Ethernet Consortium and Ethernet for Scale-Up networking initiatives, establishing open-source, interoperable protocols that large AI clusters depend upon.

The transition from 400-gigabit to 800-gigabit networking speeds—and eventually to 1.6-terabit—represents a massive refresh cycle. Arista’s next-generation 800-gigabit R4 Series switches are purpose-built for this transition, giving the company a first-mover advantage in the industry’s infrastructure overhaul.

Concrete Wins with Hyperscaler Giants

Partnerships with Meta Platforms and Oracle have become Arista’s most potent competitive moat. The company co-developed the Disaggregated Scheduled Fabric (DSF)—a two-layer Ethernet architecture—specifically for Meta’s large-scale AI training clusters. Meta has already begun migrating its infrastructure to this DSF-based networking model.

Wall Street analysts are taking notice. Evercore Research projects that Arista could capture 30% of back-end cloud networking spending in the coming years, with significant upside from Meta’s expanding data center footprint alone. Separately, Oracle has integrated Arista’s networking solutions into its Oracle Acceleron platform, validating the company’s enterprise-grade technology.

These relationships aren’t mere endorsements—they represent validated technology stacks deployed at scale across mission-critical infrastructure.

Financial Strength Backing Growth Ambitions

Arista’s financial profile rivals software companies rather than traditional hardware vendors. The company maintains a non-GAAP gross margin of 65.2% and operating margin of 48.6%, while holding $10.1 billion in cash with $1.3 billion in quarterly operating cash flow.

Management guides for 26-27% revenue growth (approximately $8.87 billion at midpoint) in fiscal 2025, followed by 20% growth to $10.65 billion in fiscal 2026. The company conservatively estimates AI-related networking revenue will reach at least $1.5 billion in FY2025 and $2.75 billion in 2026. With its addressable market projected to exceed $100 billion within years, Arista is capturing only a fraction of available opportunity.

The VeloCloud acquisition strengthened the company’s enterprise campus networking portfolio, adding software-defined wide-area network (SD-WAN) capabilities, an established sales channel, and over 20,000 enterprise customers to its product mix.

Why Recent Concerns Miss the Mark

Arista’s stock tumbled roughly 18% over the past month, despite beating consensus expectations in Q3. The market’s anxiety centers on two concerns: first, management may have under-guided on near-term strength; second, Nvidia’s entry into Ethernet networking with its Spectrum X platform poses a competitive threat.

Both concerns misread the actual market dynamics. Nvidia’s Spectrum X push actually validates the broader industry shift toward Ethernet-based networking—a trend that benefits Arista as the market expands. The opportunity is sufficiently enormous that multiple vendors can thrive. Nvidia’s customer wins with Meta and Oracle don’t cannibalize Arista’s market share; rather, they confirm the strategic priority hyperscalers are placing on networking infrastructure.

A Premium That Earns Its Keep

At current valuations, Arista commands a premium multiple. However, this premium is justified. A company growing 20%-plus annually while maintaining software-like profit margins and commanding sticky customer relationships deserves to trade at elevated multiples—especially when it operates in a market that’s still in its infancy.

The convergence of standardized Ethernet networking, explosive hyperscaler demand, and Arista’s deeply embedded customer relationships positions the company for sustained outperformance. Market participants haven’t yet caught up to this narrative. For investors seeking exposure to AI infrastructure beyond the obvious picks, Arista Networks represents a compelling yet overlooked opportunity during the current market pullback.