Arista Networks (ANET) Stock Forecast & Price Target

Arista Networks is positively positioned due to a significant increase in deferred revenues, which rose by $600 million quarter-over-quarter to reach $4.7 billion, indicating robust demand for its Ethernet products in AI data centers. The company has also experienced substantial growth in purchase commitments, which increased by $625 million quarter-over-quarter, reflecting new product traction and a backlog among major cloud and AI clients. Additionally, Arista’s potential to maintain operating margins while managing spending, coupled with a forecast of 20% sales growth by 2026, strengthens its financial outlook amidst a deceleration in top-line growth.

Arista Networks's stock has experienced a decline of approximately 10% after-hours due to disappointing revenue and product billings deceleration, with the company's Q4 exit rate failing to meet heightened investor expectations. Despite reporting strong gross margins of 65.2% for the third quarter, guidance indicates a decline of roughly 250 basis points in future margins, primarily driven by a higher mix of AI Titan products, suggesting potential challenges in maintaining favorable product margins below 60%. Furthermore, economic downturns and shifts in customer spending priorities threaten to negatively impact sales, especially as the company's revenues from the Campus segment remain relatively small at 10% and are projected to experience pressure amid slower enterprise and campus spending.