Shares of Arista Networks plummeted Tuesday after the company reported first-quarter earnings and revenue that topped analyst estimates amid high expectations for ANET stock. But shares took a hit as analysts mulled the company's updated full-year outlook.
The maker of cloud computing network gear reported its results after the market close on Monday.
For the three months ended March 31, Arista earnings surged 70% to $1.43 per share, topping estimates of $1.35 per share. Also, revenue jumped 54% to $1.35 billion vs. forecasts for $1.31 billion.
A year earlier, Arista earnings were 84 cents a share on revenue of $877 million.
Sales Guidance For ANET Stock
For the June quarter, Arista predicted revenue in a range of $1.35 billion to $1.4 billion, topping estimates of $1.35 billion.
Goldman Sachs analyst Michael Ng said in a report: "ANET's more cautious commentary around Cloud titan spending and inventory build has reduced the likelihood of substantial revenue upside in 2023 and has led to concerns around the slowing 2023 exit growth rate."
"ANET stock had a solid beat in Q1," Barclays analyst Tim Long said in a note to clients. "Revenue guidance for 2023 implies no upside to the second half, which we view as conservative."
At Raymond James, analyst Simon Leopold said in his note: "Visibility into the cloud customers has normalized, faster than we expected, and this as well as no upside to the 2023 outlook contributed to the shares coming under pressure. Arista remains a share-taker playing in growth markets, but it is not immune to normalization."
ANET stock plunged 15.7% to close at 134.98 on the stock market today.
Artificial Intelligence Investments
Some analysts expect ANET stock to get a boost from customer investments in artificial intelligence. Internet data centers will need more computing power and network bandwidth to process AI workloads.
"While management expressed confidence on the long-term AI trajectory, they did note that in the near-term deployments of cloud regions are getting 'pushed out' and that March saw some unexpected softness," UBS analyst David Vogt said in a note.
Arista's revenue boomed more than 48% in 2022. Analysts expect sales growth to slow in 2024 and 2025. Meanwhile, that has raised questions over the valuation of ANET stock.
In 2023, analysts predict revenue growth of 26%. In 2024, analysts currently model sales growth of 12%.
Big Gains For Arista Shares
Heading into the earnings report, ANET stock had advanced nearly 32% in 2023. Also, Arista's biggest customers are Microsoft and Facebook-parent Meta Platforms.
Arista sells switches that speed up communications among racks of computer servers packed into data centers. Further, 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.
