Arista Networks' stellar revenue growth as a public company came largely at the expense of tech industry giant Cisco Systems, as Arista won cloud computing service providers as big customers. Now the outlook for Arista stock depends largely on triumphing over another formidable rival – Nvidia – as cloud giants upgrade data centers for artificial intelligence.
While the battleground in cloud networking equipment has shifted, Arista is still plugging away at improving a core technology. That would be Ethernet. Several companies were instrumental in making Ethernet a dominant networking technology. Among them were 3Com, founded by Ethernet pioneer Robert Metcalfe, Intel and Cisco.
Founded in 2004, Arista's early growth came from developing Ethernet switches for computer networks used in high frequency trading in the financial services industry. Then Arista, which launched its initial public offering in 2014, redefined Ethernet architectures for cloud computing.
Along the way, Arista won big "hyperscaler" customers, such as Meta Platforms and Microsoft. They operate large-scale internet data centers.
Arista Stock: AI Challenge
When the ChatGPT, generative artificial intelligence wave hit the tech industry in late 2022, suddenly the data center infrastructure market changed. Tech giants quickly focused on building new data centers with clusters of AI computer servers. These "back-end" clusters may scale up to 100,000 servers or more.
Those AI server clusters, in turn, require with high-bandwidth computer networking technology.
So Arista quickly huddled with customers to figure out how new Ethernet technologies could meet the challenge.
"We quickly realized AI wasn't really like the cloud, that AI was extremely data- and compute-intensive." recalled Arista Chief Executive Jayshree Ullal in an interview with IBD. "You have to worry about the diversity of the workflows, the intensity of the workflows. The network needs to be much more aware of the compute and scaling up.
"So in 2022 we started working very closely with customers to build what we called the AI spine. That's how our journey started. It required some very intimate collaboration with our major customers. It went from doing the right thing to doing a whole lot of AI things, building a portfolio of products."
Ullal added: "I never bet against Ethernet. Ethernet can be built to be very elastic. In my view, there's no doubt that Ethernet can rise to the occasion like it has many times. And, that Ethernet can scale up for AI."
Key AI Trials Underway
Arista has told Wall Street analysts that it has five large AI trials underway using new Ethernet technology. The company expects that three of the five should provide revenue in 2025, with one to ramp in 2026.
For 2025, Arista has forecast $1.5 billion combined "front-end/back-end" AI-related revenue.
"We expect 2025 to be the year of AI production, with three of our customers deploying anywhere from 50,000 to 100,000 GPUs each," Ullal said.
She added: "It's going to be harder to distinguish between front-end networking and back end (connecting AI servers) because as companies complete AI training models they're going to take AI traffic everywhere. Just as the internet and cloud traffic was widely dispersed, AI traffic will also be."
Arista faces stiff competition as cloud hyperscalers build AI-centric data centers. Chipmaker Nvidia also has developed new Ethernet technology for connecting clusters of AI severs.
Nvidia already has a big presence in networking. Nvidia acquired InfiniBand chipmaker Mellanox for $6.9 billion in 2020. But many analysts expect cloud giants to pick Ethernet technology over InfiniBand for AI-related networking.
Arista Stock: Nvidia Battle
Meanwhile, Ullal is respectful of InfiniBand but expects Ethernet to win out.
"The role on InfiniBand has remained niche," she said. "It's very appealing to some HPC (High Performance Computing) folks building supercomputers. But as time goes by InfiniBand's advantages have become less."
"Ethernet stayed at 10 gigabit speeds for a long time and didn't rush to 100 gigabits. For a long time, InfiniBand was faster. But now with the AI trigger, Ethernet has stood up. Not only has it caught up but it's already working at 400 gigabit, 800 gigabit and above."
Both Nvidia and Arista aim to be leaders in helping the tech industry develop a new AI network architecture.
Analysts say Nvidia will be able to offer product bundles — Ethernet networking devices combined with its AI accelerator chips – at attractive prices. Nvidia aims to provide customers with an AI ecosystem, including its CUDA software platform for developing AI apps and workloads.
For its part, Arista' strength is Linux-based programmable software. Called EOS, for extensible operating system, it helped Arista win cloud customers versus Cisco, which was slower to adapt to software-defined networking and automation.
"EOS is what made Arista the leader in cloud switching," said Evercore ISI analyst Amit Daryanani in a report. "The same companies deploying Arista in their multipurpose, front-end networks will be comfortable using it in their back-end networks."
Arista Partners With Broadcom
Daryanani added: "Expect an open-sourced industry standards technology to become the prevalent way back-end networks are connected overtime especially as we get away from (Nvidia) GPU shortages."
In 2023, Arista joined with Cisco, Hewlett Packard Enterprise and other companies to form the Ultra Ethernet Consortium. Nvidia also is a member.
Meanwhile, Arista has its own formidable semiconductor ally in Broadcom.
Broadcom makes Arista's Ethernet chips. Further, Arista's AI network architecture is designed to be GPU-agnostic. Broadcom is providing custom AI chips to some tech industry giants, such as ChatGPT-developer OpenAI.
But, as fate would have it, Nvidia and Cisco have partnered on AI networking. Nvidia has added Cisco's chips to its Spectrum-X Ethernet product, making Cisco the only semiconductor partner. Furthermore, Cisco will offer systems combining Nvidia Spectrum-X devices with Cisco operating system software. The partnership focuses on enabling interoperability between their respective networking architectures.
Analysts expect a fierce battle. Nvidia has already lined up Elon Musk's xAI as an Ethernet networking customer. Musk's xAI is building supercluster data centers as it competes with OpenAI, Anthropic and others.
Arista Stock Cools Off
After many years of outperforming, Arista stock has pulled back 27% in 2025, along with other artificial intelligence plays. Nvidia and Arista are among AI stocks to watch.
One worry is that Meta is buying less network gear from Arista. Wall Street analysts say Arista garnered about 20% of 2024 revenue from Microsoft and just under 15% from Meta.
Bullish analysts point to newer customers including Oracle, Google-parent Alphabet and Apple.
One of the notable things about Arista is the long tenure of most executives, including Ullal. Ullal took over as Arista CEO in 2008. She had been at Cisco for 15 years.
Arista cofounder and chief architect Andy Bechtolsheim, a Silicon Valley pioneer and the first investor in Google, is still leading technology initiatives.
In April 2024, Arista brought in Ashwin Kohli as chief customer officer and Chris Schmidt as chief sales officer. According to analysts, Arista is gaining ground in the so-called "enterprise" market — large companies, government agencies and educational institutions.
Ullal said Arista has pivoted from being an engineering-first company that targeted tech companies to building a sales team that can talk to enterprise customers.
The 'Arista Way'
"Our engineering has never been stronger but now we are not only dealing with technical decision-makers," she said. "We've had to evolve from being a cloud-first company for the enterprise. There's still a very cloud-centric side of us but now there's another whole side of us. Some could say we should have done it faster but I'm a big fan of focus and doing a few things well. In this next phase, we will double-down on cloud and AI but also will expand more into enterprise and international."
Arista's enterprise revenue will grow 15% to $1.75 billion in 2025 and 20% in 2026, estimated Morgan Stanley in a report.
Over the years, Arista has overcome legal and other hurdles.
In 2018, Arista paid Cisco $400 million as part of a settlement involving a patent infringement lawsuit. Earlier, Arista prevailed in an intellectual property lawsuit filed by its own cofounder, David Cheriton, and his software startup.
During the Coronavirus emergency in 2020-21, Arista revenue growth slowed amid supply chain issues.
Ullal credits the "Arista Way," an entrepreneurial company culture, with helping the company tackle challenges and opportunities such as AI networking.
"The Arista Way is always about doing the right thing — the right thing from a customer perspective, the right thing from a technology perspective. Because at any given time, there'll be disruptions in the technology, and we shouldn't fall in love with ourselves, right? So that's a key part of the Arista Way."
Follow Reinhardt Krause on Twitter @reinhardtk_tech for updates on artificial intelligence, cybersecurity and cloud computing.
