Shares in Arista Networks fell on Thursday amid rosy commentary by Nvidia management on its networking business on the chipmaker's first quarter earnings call. Arista stock retreated to near its 50-day moving average, a key technical level.
On the stock market today, Arista stock fell 4% to 303.69. Amid the retreat, ANET stock is still up 25% in 2024. On Thursday, Nvidia stock jumped 10.5% to near 1,049.
Most of Arista's revenue comes from computer switches and routers that connect racks of computer servers in data centers with long-distance communications networks.
Meanwhile, internet data centers will need more computing power and network bandwidth to process artificial intelligence workloads.
Arista management has forecast $750 million in AI-related sales for 2025, with a good chunk of that coming from Ethernet network switches. In July, Arista joined with Cisco Systems, Hewlett Packard Enterprise and other companies to form the Ultra Ethernet Consortium.
Cisco has also told analysts it expects strong sales of next-generation Ethernet devices for AI data centers.
Data Center Networking Battle Brewing
Ethernet network switches compete with Nvidia's InfiniBand chips, which whisk data from computer servers to storage devices. Nvidia acquired InfiniBand chipmaker Mellanox for $6.9 billion in 2020. However, Nvidia also has been developing Ethernet network switches because they're likely to over the market for performance reasons.
Nvidia's first quarter results and outlook again topped expectations. On the earnings call with analysts, Chief Executive Jen Hsun Huang touted its data center networking business. Nvidia aims to leverage its booming sales of data center artificial intelligence processors to drive the networking business as well.
Also, Huang noted that Dell will sell Nvidia's new ethernet devices.
Arista Stock Drops Out Of Buy Zone
"You can also count on us having new networking technology on a very fast rhythm," Huang said. "We're all-in on Ethernet and we have a really exciting road map coming for Ethernet. We have a rich ecosystem of partners. Dell announced that they're taking Spectrum-X to market. We have a rich ecosystem of customers and partners who are going to announce taking our entire AI factory architecture to market."
Raymond James analyst Srini Pajjuri said in a report on Wednesday: Nvidia's "new Spectrum-X Ethernet switch is on track to be a multibillion dollar business within a year, which underscore the company's diverse revenue drivers."
Meanwhile, ANET stock has dropped on six straight trading sessions. Over the past week, Arista stock fell out of a buy zone.
Follow Reinhardt Krause on Twitter @reinhardtk_tech for updates on artificial intelligence, cybersecurity and cloud computing.
