Shares in Arista Networks were flat Tuesday after the company reported a June-quarter earnings and revenue beat. But some analysts caution that revenue growth for ANET stock could slow in 2023.
The maker of computer networking gear reported Arista earnings after the market close on Monday. Arista stock initially popped as revenue guidance for the current third quarter came in above expectations. But ANET stock gave up some gains.
Higher capital spending by Facebook-parent Meta Platforms has been a growth driver in 2022. Meta has upped spending on cloud computing infrastructure. Another big customer is Microsoft.
ANET Stock: 2023 Outlook
Still, some analysts are cautious on ANET stock, contending that sales growth will slow in 2023.
"Arista would not guide for 4Q, but assuming the midpoint of 3Q, YTD sales will grow 40%. 2022 growth should be 35% to 40%," said Simon Leopold, analyst at Raymond James in a report. "Regarding 2023, management has said it should grow double-digits, which we do not consider a high bar."
There are growing expectations that Alphabet's Google will be a new Arista customer.
ANET stock edged down 0.4% to close at 117.14 on the stock market today. Arista stock had declined 18% in 2022 but has strong technical ratings.
"While we like that ANET is more insulated from potential enterprise spend weakness given cloud exposure, we are cautious around potential weakness in future cloud capex, with the company calling out uncertainty on second half 2023," said Meta Marshall, analyst at Morgan Stanley in a report.
Quarterly Revenue Tops $1 Billion
For the three months ended June 30, Arista earnings rose 59% from a year earlier to $1.08 per share, topping estimates of 92 cents. Revenue grew 49% to $1.05 billion versus forecasts for $979 million. Quarterly sales topped $1 billion for the first time.
A year earlier, Arista earnings were 68 cents on revenue of $707 million.
For the September quarter, Arista said it expects revenue in a range of $1.025 billion to $1.075 billion. Analysts had predicted revenue of $996 million.
Arista said it expects gross margins of 60% to 62% in the third quarter. It predicted operating margins of 39%.
Will Facebook Spending Moderate?
"We expect most upside is already priced in at current levels with tougher comparisons coming," said Barclays analyst Tim Long in a report. "Facebook (on its Q2 earnings call) also hinted at potential moderation in 2023 capital spending."
Heading into the earnings report for ANET stock, the computer networking firm had a Relative Strength Rating of 88 out of a best-possible 99.
Arista stock has formed a double-bottom chart pattern. ANET stock now holds an entry point of 143.67.
Arista sells switches that speed up communications among racks of computer servers packed into data centers. Its chief rivals are Cisco Systems and Juniper Networks.
According to analysts, Arista is gaining ground in the so-called "enterprise" market — large companies, government agencies and educational institutions.
Follow Reinhardt Krause on Twitter @reinhardtk_tech for updates on 5G wireless, artificial intelligence, cybersecurity and cloud computing.
