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On Thursday, Citi reaffirmed its Buy rating on Arista Networks (NYSE:ANET) shares, with a steady price target of $112. The endorsement comes despite concerns that Arista may be losing market share in the Ethernet AI back end switch market following NVIDIA’s (NASDAQ:NVDA) announcement of strong sales and new cloud customer acquisitions. According to InvestingPro data, Arista maintains a "GREAT" financial health score, with 17 analysts recently revising earnings estimates upward. The company’s strong market position is reflected in its substantial $108.5 billion market capitalization.
NVIDIA’s recent update revealed that its Spectrum-X sales have achieved an $8 billion annual run rate, with Google (NASDAQ:GOOGL) Cloud and Meta (NASDAQ:META) joining as new Spectrum-X cloud customers. This news initially sparked worries about Arista’s position in the market. However, Citi analyst Atif Malik highlighted the overall growth of the Ethernet AI back end switching Total Addressable Market (TAM), noting that Arista’s market share had doubled by FY2024. The company’s robust performance is evident in its 22.3% revenue growth and impressive return on equity of 34%.
The analysis by Citi suggests that the Ethernet switch sales of NVIDIA are likely benefiting from an expanding TAM, a trend that is also advantageous for Arista and other competitors in the space. According to information from Dell (NYSE:DELL)’Oro, Ethernet switching constitutes less than 30% of total Spectrum-X sales, indicating that the market’s growth is not solely dependent on one company’s performance.
Moreover, Citi’s commentary pointed out that hyperscalers, the large companies that provide cloud and internet services, are actively seeking diversification in their networking strategies. This is evidenced by Google potentially moving away from a single-source approach and Meta exploring multiple AI technologies, including InfiniBand and Ethernet, from various vendors. InvestingPro analysis reveals that Arista maintains strong financial flexibility with a current ratio of 3.93, though it currently trades at relatively high earnings multiples. For deeper insights into Arista’s valuation and growth prospects, investors can access the comprehensive Pro Research Report, available exclusively to InvestingPro subscribers.
In conclusion, Citi’s stance on Arista Networks remains positive, with the firm reiterating a Buy rating and a $112 price target for the company’s stock. The affirmation reflects confidence in the market’s expansion and Arista’s ability to capitalize on the growing demand for Ethernet AI back end switches. With analyst targets suggesting potential upside and a strong track record of profitability, investors seeking detailed analysis can find over 15 additional ProTips and comprehensive metrics on InvestingPro.
In other recent news, Arista Networks has been the focus of several analyst updates and financial projections. Citi analysts raised their price target for Arista Networks to $112, citing expectations of doubling market share in the Ethernet AI back-end sector by 2025. This optimism is supported by Arista’s notable market share growth, increasing from 6% to approximately 11% in 2024. Barclays adjusted its price target to $119 from $126, maintaining an Overweight rating after Arista’s first-quarter results exceeded expectations. Despite uncertainties around tariffs, the company remains optimistic about achieving its long-term revenue goal earlier than planned. Needham also lowered its price target to $130, acknowledging strong first-quarter earnings but expressing caution about potential tariff impacts in the latter half of 2025. Meanwhile, Redburn-Atlantic initiated coverage with a Buy rating and a $112 target, highlighting Arista’s technological advantages in AI infrastructure. These developments reflect a mix of confidence and caution among analysts regarding Arista’s future performance amid market challenges.
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