Arista Networks reported third-quarter earnings and revenue that topped analyst estimates. But amid its big 2024 gain, Arista stock retreated as investors mulled 2025 revenue and operating margin guidance.
Also, the company announced a 4-for-1 stock split.
The maker of computer network gear reported earnings after the market close on Thursday.
Revenue Guidance For Arista Stock
For 2025, Arista forecast revenue growth of 15% to 17% to nearly $8 billion.
"Management provided guidance for next year's revenue growth of 16% at the midpoint, which was roughly in line with Street estimates," said William Blair analyst Sebastien Naji in a report. "Non-GAAP gross margin guidance of 61% and non-GAAP operating margin guidance of 43.5% were below consensus. The lower gross margins in 2025 reflect the mix-shift to more cloud titan revenue as the Ethernet AI opportunity ramps up."
For the three months ended Sept. 30, Arista earnings rose 31% to $2.40 per share on an adjusted basis. Also, revenue rose 21% to $1.81 billion.
Analysts estimated earnings per share of $2.08 on revenue of $1.76 billion.
For the current quarter ending in December, Arista predicted revenue in a range of $1.85 billion to $1.90 billion, vs. estimates of $1.81 billion.
On the stock market today, Arista fell 5.6% to near 407 in early trading.
Heading into the earnings report, Arista stock had advanced nearly 83% in 2024, according to IBD Stock Checkup.
Arista sells computer network switches that speed up communications in internet data centers. Its chief rivals are Cisco Systems and Juniper Networks.
For 2025, Arista has been projecting $750 million in artificial-intelligence-related revenue. Most of that is expected to come from Ethernet networking technology that connects the clusters of AI servers in cloud-computing data centers.
Arista Stock: Product Deferred Revenue Metric
Also, Arista is not hosting an investor day in late November, unlike last year.
One financial metric related to 2025 AI orders important to watch is product deferred revenue.
In Q3, product deferred revenue rose to $840 million, up from $520 million in the June quarter.
"This comes from product shipments where Arista was unable to formally recognize revenue – typically where the customer is evaluating a new product and has not yet triggered formal product acceptance," said Jefferies analyst George Notter in a report. "For Arista, it provides additional visibility, and is indicative of their healthy new product pipeline."
Arista's biggest customers are Microsoft and Facebook-parent Meta Platforms. Further, Arista is gaining ground in the so-called "enterprise" market — large companies, government agencies and educational institutions.
Apple, Google New Customers
At Needham, analyst Ryan Koontz said in a report: "We see further dominance at Meta and growing traction at Alphabet's Google and Apple driving strong growth in 2025, but at the expense of gross margins which we suspect will decline if its enterprise business does not meaningfully accelerate."
Meanwhile, Arista is among the top AI stocks to watch.
Follow Reinhardt Krause on Twitter @reinhardtk_tech for updates on artificial intelligence, cybersecurity and cloud computing.
