Is Arista Networks (ANET) Undervalued Amid AI Networking Demand?

The question of whether Arista Networks (ANET) is undervalued amid the explosive growth of AI-driven networking demand hinges on two critical factors: its current valuation metrics relative to peers and the scale of its involvement in the AI infrastructure boom. With a trailing twelve months (TTM) price-to-earnings (P/E) ratio of 48.66 as of January 2026-well above the Technology sector average of 31.55 and peers like Cisco Systems (CSCO) and Microsoft (MSFT)-ANET appears to trade at a premium. However, this premium may reflect justified optimism about its role in powering the next phase of AI infrastructure, a market poised for rapid expansion.

Valuation Metrics: A Premium Amid Growth Expectations

Arista's P/E ratio has historically averaged 37.93 over the past five years and 39.34 over the last three years according to data. Its current multiple of nearly 50 suggests investors are pricing in robust future earnings growth. This is further amplified by its TTM price-to-sales (P/S) ratio of 18.35, significantly higher than the Technology sector average of 7.93. While these metrics imply ANET is expensive relative to peers, they also underscore a key dynamic: investors are willing to pay a premium for companies positioned to benefit from transformative trends like AI.

The disconnect between ANET's valuation and its historical averages could signal a dislocation-a scenario where the market overestimates or underestimates a company's future potential. In this case, the premium appears to align with expectations of strong growth, particularly in AI infrastructure, where Arista holds a dominant position.

Arista's Strategic Position in AI Infrastructure

Arista's relevance to AI infrastructure is underscored by its leadership in high-speed data center switching. The company commands a 43% market share in 100G/200G/400G/800G Ethernet ports, critical components for handling the massive data flows required by AI workloads. This dominance is not accidental: Arista's modular, high-performance switches are tailored for cloud providers and enterprises scaling AI capabilities, a market Goldman Sachs Research estimates will account for 27% of global data center power demand by 2027.

Analyst projections further validate Arista's growth trajectory. From 2024 to 2027, the company is expected to grow revenue and earnings per share (EPS) at compound annual growth rates (CAGRs) of 22% and 21%, respectively. Arista itself has guided for mid-teens revenue growth through 2026, a target it has already exceeded in early 2025, with Q1 2025 reporting 27.6% year-over-year revenue growth. These figures suggest the company is not merely benefiting from macro trends but is actively capitalizing on them.

Valuation Dislocation: Justified or Overstretched?

The key question is whether Arista's valuation multiples are justified by its growth prospects. A P/E of 48.66 implies investors expect earnings to grow significantly faster than the sector average. Given Arista's 22% revenue CAGR and 21% EPS CAGR projections, this expectation seems plausible. For context, a company growing at 22% annually would see earnings double in roughly three years (using the rule of 72). If Arista can maintain this pace, its current P/E could be rationalized as a forward-looking multiple rather than an overvaluation.

However, risks remain. The AI infrastructure market is capital-intensive, with Bain & Company estimating that data center costs could rise from $1 billion to $25 billion within five years. Arista's ability to scale its offerings without margin compression will be critical. Additionally, while the AI software market is projected to grow at a 25% CAGR (reaching $467 billion by 2030) and generative AI at 34.5% according to ABI Research, hardware demand is equally volatile. A slowdown in AI adoption or supply chain disruptions-such as the anticipated GPU shortages by 2026-could temper growth.

Conclusion: A Premium with High Conviction

Arista Networks' valuation appears to reflect a high-conviction bet on AI infrastructure demand. While its P/E and P/S ratios exceed industry averages, these multiples are supported by its market-leading position in high-speed networking and robust growth projections. For investors, the key consideration is whether Arista can sustain its current trajectory amid intensifying competition and macroeconomic headwinds. If the company continues to outperform expectations-driven by its technical expertise and strategic alignment with AI's infrastructure needs-the current valuation may prove to be a prudent premium rather than a dislocation. Conversely, any missteps in execution or slower-than-anticipated AI adoption could expose the stock to significant downside.

In the context of a rapidly evolving AI landscape, Arista's valuation is neither undervalued nor overvalued in isolation-it is a forward-looking reflection of its potential. For those who believe in the long-term trajectory of AI-driven networking, ANET's premium may be a feature, not a flaw.