Arista Networks Plummets 7% as Analysts Reassess AI Sector Dynamics

Summary
• Arista Networks (ANET) plunges 7.02% intraday to $124.95, breaching the 5-day SMA amid sector-wide declines.
• Nasdaq-100 drops 0.85%, S&P 500 falls 0.36%, signaling broader market fragility.
• Analysts flag Nvidia's exclusion from Motley Fool recommendations as a catalyst for sector rotation.

Arista Networks' sharp selloff reflects investor anxiety over AI infrastructure competition and earnings momentum. The stock's 7% drop—its worst intraday performance since Q3 2024—coincides with a 27.5% YoY revenue beat but muted forward guidance. With the Nasdaq-100 and S&P 500 also retreating, the move underscores a reevaluation of AI-driven growth narratives.

Investor Concerns Over Nvidia Competition Spark ANET Selloff
The selloff stems from dual pressures: 1) speculation about Nvidia's expanding AI dominance, which has triggered a sector rotation away from networking infrastructure, and 2) Evercore ISI's downgrade from 'Tactical Outperform' to 'Outperform' following Q3 results. While Arista reported $2.31B in revenue (up 27.5% YoY), analysts noted stagnant forward estimates and margin compression. The Motley Fool's exclusion of Nvidia from its top stock list amplified fears of a competitive shift, with investors questioning Arista's ability to maintain its 28% FY2026 sales growth forecast.

Communication Equipment Sector Volatile as CSCO Trails ANET's Drop
The Communication Equipment sector (XLC) fell 1.5% as of 20:42 ET, with Cisco Systems (CSCO) down 1.81%. While ANET's 7% decline outpaces sector averages, CSCO's resilience suggests selective selling pressure. The sector's underperformance aligns with broader tech weakness, as AI infrastructure stocks face profit-taking after a 12-month rally. Arista's 52-week high of $164.94 remains 31% above current levels, highlighting the magnitude of the correction.

Options Playbook: ANET Puts and Calls for Volatility-Driven Strategies
• RSI: 78.42 (overbought correction in progress)
• MACD: -2.01 (bearish crossover with signal line at -3.60)
• Bollinger Bands: Price at 124.95 (near lower band at 118.87)
• 200D MA: 113.31 (critical support ahead)

Technical indicators confirm a short-term bearish setup. Key levels to watch: 1) 120.00 (psychological floor), 2) 115.00 (Bollinger lower band), and 3) 113.31 (200D MA). The 78.42 RSI suggests overbought conditions have reversed, while the MACD histogram (-1.59) indicates bearish momentum. With the sector leader CSCO down 1.81%, leveraged ETFs (if available) could amplify directional bets.

Top Options Contracts:
1. ANET20251219P120 (Put, $120 strike, 12/19 expiry):
• IV: 46.44% (moderate)
• LVR: 92.75% (high leverage)
• Delta: -0.2529 (moderate sensitivity)
• Theta: -0.0012 (minimal time decay)
• Gamma: 0.0371 (high sensitivity to price moves)
• Turnover: 152,978 (liquid)
• Payoff at 5% downside ($118.70): $1.30/share
This put option offers asymmetric upside with high gamma and liquidity, ideal for capitalizing on a potential breakdown below $120.

2. ANET20251219C128 (Call, $128 strike, 12/19 expiry):
• IV: 41.57% (moderate)
• LVR: 64.21% (moderate leverage)
• Delta: 0.3772 (moderate sensitivity)
• Theta: -0.4173 (high time decay)
• Gamma: 0.0493 (high sensitivity)
• Turnover: 169,961 (liquid)
• Payoff at 5% downside ($118.70): $0.00 (out of money)
This call provides bullish exposure with high gamma but faces time decay risks. Best for aggressive traders expecting a rebound above $128.

Trading Insight: Aggressive short-sellers should prioritize ANET20251219P120 if $120 breaks, while bulls may consider a $128 call into a bounce above $130.

Backtest Arista Networks Stock Performance
The iShares Core S&P U.S. ETF (ANET) has experienced a total of 433 days with an intraday percentage change of less than -7% since 2022. While the 3-day win rate is 57.97%, the 10-day win rate is 60.05%, and the 30-day win rate is 70.44%, indicating a higher probability of positive returns in the short term, the maximum return during the backtest period was only 13.16%, suggesting that while ANET has a good chance of recovery after a significant drop, the overall performance in the medium to long term may be muted.

ANET at Crossroads: Watch for $120 Support and Sector Rotation Signals
Arista Networks' 7% drop reflects a pivotal moment in its AI infrastructure narrative. With the stock trading near its 200D MA and RSI at 78.42, the correction may stabilize if $120 holds. Analysts remain bullish on the 12- to 18-month outlook, with a $170.20 average target, but near-term volatility is likely. Sector leader CSCO's 1.81% decline suggests broader weakness, but ANET's technicals point to a potential rebound from key support levels. Action: Monitor $120.00 as a critical floor and consider ANET20251219P120 for a short-side play if the breakdown confirms.