Shares in Arista Networks surged Tuesday after its second-quarter results topped analyst estimates. The maker of computer networking gear gave its first preliminary 2024 revenue outlook for ANET stock. Some analysts expect artificial intelligence-driven growth to kick in around 2025.
Released after the market close on Monday, Arista earnings climbed 46% to $1.58 per share, topping estimates of $1.44 per share. Also, revenue jumped 39% to $1.46 billion vs. forecasts for $1.38 billion for the three months ended June 30.
A year earlier, Arista earnings were $1.08 a share on revenue of $1.05 billion. For the September quarter, Arista predicted revenue in a range of $1.45 billion to $1.5 billion. That topped estimates of $1.39 billion.
ANET stock jumped 19.7% to close at 185.61 on the stock market today. Meanwhile, ANET stock had an entry point of 178.36. With Tuesday's gain, Arista stock is still in a 5% buy zone.
ANET Stock: Microsoft, Meta Biggest Customers
Arista sells switches that speed up communications among racks of computer servers packed into internet data centers.
Arista's biggest customers are Microsoft and Facebook-parent Meta Platforms. Arista stock retreated last week after Microsoft and Meta reported June-quarter results and updated capital spending plans.
According to analysts, Arista is gaining ground in the so-called "enterprise" market, where it sells network gear to big companies.
"ANET had a strong beat in Q2 and raised Q3 and the full year guide," Barclays analyst Tim Long said in a note to clients. "Although the tone around cloud titans (Microsoft and Meta) took a step back, management still expect double-digit growth for that vertical this year."
Long added: "Revenues continue to diversify with strong enterprise. Management has a goal for at least double-digit growth in 2024, which we see as attainable. The set up beyond that is even better given AI potential."
Cisco Systems, Juniper Rivals
Arista is among artificial intelligence stocks to watch. Some analysts expect ANET stock to get a boost as internet data centers require more computing power and network bandwidth to process AI workloads.
In his note to clients, UBS analyst David Vogt said: "While double digit is modest, given the strong calendar 2023, the preliminary outlook for 2024 is just enough in our view to keep investors involved until the company can bridge the gap to a more robust AI revenue backdrop in 2025."
Some analysts expect Google-parent Alphabet to become a bigger Arista customer.
"With component lead times easing, cloud visibility has normalized to under six months and cloud growth/backlog is now declining," Oppenheimer analyst Kidron Singh said in a note. "While this can be a near-term source of concern for investors, we expect Arista to continue gaining switching share, benefit from AI, and make meaningful inroads into campus and WAN, offsetting headwinds. Valuation continues to keep us sidelined."
Arista stock had gained about 27% this year ahead of the earnings report.
Heading into earnings, Arista stock owned a Relative Strength Rating of 76 out of a best-possible 99, according to IBD Stock Checkup.
Its chief rivals are Cisco Systems and Juniper Networks.
Follow Reinhardt Krause on Twitter @reinhardtk_tech for updates on 5G wireless, artificial intelligence, cybersecurity and cloud computing.
