Arista Networks Delivers a Blowout Q2 as AI and Cloud Fuel Growth Outlook

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Arista Networks (ANET) posted a blockbuster set of second-quarter results, easily topping Wall Street expectations and prompting analysts to lift their price targets as shares challenge all-time highs near $133. The company reported adjusted EPS of $0.73 versus consensus of $0.65, on revenue of $2.205 billion compared to estimates of $2.108 billion. Robust demand from hyperscale cloud customers and accelerating AI networking adoption were the clear drivers, with management raising its full-year revenue growth forecast from 17% to 25%. Investors cheered the news, pushing ANET up nearly 13% post-report — a move that bodes well for peers like Broadcom (AVGO), which shares exposure to similar secular growth themes.

Key Metrics Beat Across the Board

Revenue surged 30% year-over-year, supported by a 32% increase in Product sales to $1.877 billion and a 23% rise in Services revenue to $328 million. Gross margin came in at 65.6%, ahead of both guidance (63%) and consensus (61.5%), helped by efficient supply chain management and favorable mix. Operating margins were a standout at 48.8%, well above expectations of ~46%, translating into adjusted net income of $923.5 million. Operating cash flow hit a record $1.2 billion, underscoring the company’s execution strength.

The upside wasn’t confined to the quarter: deferred product revenue ballooned to $1.9 billion, up $687 million sequentially, signaling sustained demand for upcoming deployments. Purchase commitments also climbed to $3.64 billion from $3.53 billion last quarter, further reinforcing the growth pipeline.

AI and Hyperscaler Demand at the Core

The main engine behind ANET’s strength remains hyperscaler demand, particularly from Tier 1 customers like Meta and Microsoft. Analysts noted that Meta and Microsoft’s CapEx revisions — both expected to grow more than 50% in 2025 and above 20% in 2026 — create a favorable backdrop for Arista. CEO Jayshree Ullal highlighted the rapid ramp of AI-driven demand, saying, “We therefore raised our 2025 annual growth to 25%, now targeting $8.75 billion in revenue, which is an incremental $550 million more due to our increased momentum across AI, cloud, and enterprise sectors.”

Arista continues to see strong adoption of its back-end AI networking products, with 2025 AI revenue expected to exceed $1.5 billion. Hyperscalers are expanding deployments toward 100K GPU clusters, and Arista has broadened its AI customer base to 25–30 firms, up from 15 previously. Analysts at JPMorgan noted the scale of deferred revenue alone could contribute roughly 20 points of growth to 2025 revenue expectations.

Enterprise and Campus Expansion

While hyperscale and AI dominate the headlines, Arista’s Enterprise and Campus business also delivered record demand in the June quarter. Management raised its 2025 campus revenue target to $750–$800 million, up from $750 million previously, with a modest boost from the recent acquisition of VeloCloud. COO Todd Nightingale said the addition “fills an enormous hole in the enterprise campus portfolio for the distributed branch,” adding another growth vector as enterprises modernize their networks to support AI workloads.

Q3 and Full-Year Outlook

Looking ahead, management guided Q3 revenue to approximately $2.25 billion, well above consensus of $2.127 billion. Gross margin is expected around 64%, and operating margin near 47%. For the full year, revenue growth is pegged at 25%, or $8.75 billion, with gross margins revised upward to 63–64%. CFO Chantelle Breithaupt emphasized that demand across AI, cloud, and enterprise remains broad-based: “We are confident and excited in our ability to finish the year strongly.”

Importantly, the company reiterated its confidence in reaching $10 billion in annual revenue by 2026 — two years ahead of its prior 2028 timeline. Analysts see additional upside in 2027 and beyond as Arista moves into the Scale-up AI networking market, where Ethernet is expected to gain share over proprietary solutions like Nvidia’s NVLink.

Analyst Sentiment and Stock Action

The beat and raise drew enthusiastic responses from Wall Street. Evercore lifted its price target to $150, UBS to $155, and KeyBanc to $145, all highlighting accelerating AI demand, hyperscaler CapEx momentum, and expanding enterprise opportunities. Evercore noted that deferred revenue of $1.9 billion, up 265% year-over-year, sets a strong foundation for growth into 2026 and beyond.

Shares rallied nearly 13% post-report and are now testing the $133 area — their all-time high. With analysts projecting mid-20% sales and EPS growth for the next few years, momentum appears intact. The read-across to AVGO is positive, as its AI networking and hyperscale businesses benefit from the same secular tailwinds.

Bottom Line

Arista’s Q2 was a clear validation of its strategy to dominate high-performance networking in the AI era. With results smashing expectations, guidance raised sharply, and a backlog that points to sustained strength, the company has cemented its position as a leader in hyperscale and enterprise networking. Management’s confidence in reaching $10 billion in revenue by 2026 underscores the scale of the opportunity ahead. While valuation remains rich, ANET’s execution and demand visibility are keeping the bull case firmly intact.

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