Arista Networks Q2 Preview: Can AI Networking Momentum Outrun Tariff Risks and Profit‑Taking?

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Arista Networks heads into its Q2 earnings report tonight with investors laser‑focused on two themes: the strength of hyperscale AI data center demand and the looming risks from tariffs. The company has carved out a leadership position in high‑speed Ethernet switching, establishing itself as a critical infrastructure player in AI buildouts. Shares have surged since breaking above the 200‑day moving average in late June, topping out at $125 before profit‑taking brought the stock back into the $113–115 support zone. The key question for this quarter: can ANET deliver enough on AI‑driven momentum to reassure investors and keep the uptrend alive?

Analysts expect another strong print. Consensus calls for Q2 revenue of $2.11 billion, up about 25% year‑over‑year, and earnings per share (EPS) of $0.65. Citi notes management guided to a single revenue figure this quarter, rather than its usual range, a signal of confidence in the trajectory. Gross margin guidance stands around 63%, already factoring in tariff impacts, while operating margin is expected near 46%. Full‑year 2025 revenue guidance remains at roughly $8.2 billion, implying 17% growth, with some analysts anticipating upside revisions in the second half.

The backdrop for these results is unusually strong analyst sentiment. Over the past three months, there have been 17 upward revisions to EPS estimates and 15 upward revenue revisions, with almost no cuts. Citi remains constructive, calling ANET its top‑ranked stock for the back half of the year, while Erste highlights the company’s superior operating margins versus peers. Evercore is also bullish, pointing to ANET’s growing Ethernet market share in AI back‑end networks and forecasting that the company could capture 30% of that segment in the coming years.

The key metrics to watch tonight will be revenue growth across cloud and enterprise segments, deferred revenue levels, and progress on AI‑driven sales. Analysts are particularly focused on Arista’s $750 million AI back‑end revenue goal for 2025. CEO Jayshree Ullal previously said that three of the company’s four major AI customers were on track for large‑scale GPU deployments by year‑end, reinforcing that target. Deferred revenue has become a bellwether metric, as it reflects trials and customer acceptance for large AI cluster deployments. A continued build there would be read as validation of strong pipeline momentum.

Tariffs remain a significant risk. Management has been cautious, noting that higher U.S. tariffs beginning in July could impact both gross margins and customer purchasing patterns. Citi has emphasized that while Nvidia’s Spectrum‑X platform raised concerns about Ethernet switch market share, ANET is still benefiting from an expanding total addressable market (TAM). In fact, Dell’Oro data shows ANET’s share of the Ethernet AI back‑end market effectively doubled from ~6% early in 2024 to ~11% by year‑end. Still, tariff‑related cost pressure is the most visible near‑term challenge for the stock.

Q1 results provide a strong base for comparison. Revenue hit $2.005 billion, above estimates, while adjusted EPS came in at $0.65 against consensus of $0.59. Gross margin reached 64.1%, supported by an efficient supply chain and favorable customer mix. Deferred revenue grew to $3.1 billion, and the company authorized a fresh $1.5 billion stock repurchase program. Management struck an upbeat tone, citing robust demand in AI, data center, and enterprise sectors. Yet, the decision not to raise full‑year guidance despite the beat highlighted their caution around tariffs. That restraint saw shares drop 6% following the report.

Looking forward, hyperscale demand is the core driver. Citi projects ANET’s FY2025 sales at $8.6 billion, up 23% year‑over‑year, underpinned by expanding hyperscale Ethernet switching needs. Evercore points to catalysts like Meta’s AI infrastructure announcements and broader cloud spending as key swing factors. At the same time, concentration risk remains: much of Arista’s revenue relies on a handful of cloud giants like Microsoft and Meta. Any slowdown in hyperscale capital spending could quickly reverberate through its results.

Valuation adds another layer to the debate. Citi’s $123 price target reflects a 39x multiple on FY2026 EPS, modestly above current trading levels, while Needham recently trimmed its target to $130 citing broad multiple compression in tech. The stock’s steady climb since April has been fueled by AI optimism, but holding the $113–115 support zone is critical ahead of the print. A disappointing guide or tariff‑driven margin squeeze could threaten that level, while a clean beat with reaffirmed AI traction could re‑ignite momentum toward the $125 range and beyond.

For secondary plays, Broadcom (AVGO) is worth watching. As a major networking and semiconductor supplier, it tends to benefit from the same hyperscale data center spending trends that drive Arista. Positive commentary from ANET tonight could provide read‑through for AVGO’s Ethernet switching business.

In sum, Arista’s Q2 earnings are shaping up as a referendum on AI networking demand versus tariff‑driven headwinds. If management confirms robust deferred revenue growth, solid progress toward its $750 million AI back‑end target, and manageable tariff impacts, investors may treat today’s dip as another buying opportunity. But the stakes are high: with shares perched on a technical support zone, the market will quickly decide whether the AI tailwinds are enough to keep ANET’s uptrend intact.

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