Can Arista Networks Stock Continue to Rally After Its Q3 Earnings?

Valued at a market cap of $124.05 billion, Arista Networks (ANET) is among the best-performing stocks in the past decade. Since November 2014, ANET stock has returned 1,981% to shareholders, compared to the S&P 500 Index's ($SPX) gains of 176.3%. 

The next driver of share prices is set to be Arista’s upcoming Q3 earnings results, scheduled for release after the market closes this Thursday, Nov. 7. So, let’s see what Wall Street expects from the rapidly growing data center company for the quarter ended in September. 

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Arista Networks is Forecast to Increase Sales by 17.8%

Arista Networks develops, markets, and sells cloud networking solutions in the U.S. and other international markets. Its networking solutions include switching and routing platforms serving a range of companies across industries, including internet companies, service providers, financial services, and others. It also provides post-contract customer support services, resulting in a steady stream of recurring sales. 

ANET is part of the artificial intelligence megatrend, given that cloud providers are investing heavily in graphics processing units to increase revenue and penetrate new markets. The company offers CloudEOS, that enables seamless connectivity across public cloud vendors such as Amazon (AMZN) Web Services, Microsoft (MSFT) Azure, and Alphabet's (GOOGL) Google Cloud. The solution facilitates automated deployment and management of network resources across multiple cloud infrastructures. 

Moreover, its AI technology enhances network visibility by leveraging machine learning to detect threats and unlock operational insights across cloud environments. 

In Q2 of 2024, Arista reported revenue of $1.69 billion and earnings of $2.10 per share, compared to estimates of $1.65 billion and $1.94 per share, respectively. During its last earnings call, Arista forecast sales between $1.72 billion and $1.75 billion in Q3. 

In Q3 of 2024, analysts expect Arista Networks to increase sales by 17.8% year over year to $1.74 billion, while adjusted earnings are forecast to grow by 13.7% to $2.08 per share. 

What's Next for ANET Stock?

Arista Networks is positioned to gain traction in the AI hardware market, which is driven by strong demand from data centers. A report from Mordor Intelligence forecasts the AI hardware market to grow at a compounded annual growth rate of 26% through 2029, suggesting that stocks like Arista are a top investment choice right now. 

Several trends are driving demand for network transformation, including the shift to online streaming, remote work, the Internet of Things, and more. With a gross margin of over 65% and an operating margin of over 46%, Arista Networks reported a free cash flow of $2.7 billion in the last 12 months, up from $2 billion in 2023 and $448.2 million in 2022. 

Priced at 46x trailing cash flow, ANET stock might seem expensive. However, it continues to grow earnings at an impressive pace. Analysts tracking Arista Networks stock project its adjusted earnings to expand from $6.94 per share in 2023 to $9.51 per share in 2025. 

Out of the 19 analysts covering ANET stock, the consensus rating is a “moderate buy.” The shares are already trading at a premium to their average price target of $393.24. 

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On the date of publication, Aditya Raghunath did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.