Was Jim Cramer Right About Arista Networks Inc (ANET)? A Data-Driven Analysis

Jim Cramer’s April 2024 recommendation to “buy Arista Networks at $70” has sparked debate among investors, especially as the company navigates the AI-driven tech boom. To determine whether Cramer’s call was prescient or premature, we dissect ANET’s performance, valuation, and the evolving landscape of AI infrastructure.

Cramer’s Case for ANET in 2024

During a Mad Money segment, Cramer argued that ANET was “down way too much” despite its leadership in data center networking and AI infrastructure. He emphasized the company’s conservative guidance, strong management under CEO Jayshree Ullal, and the growing demand for high-speed switches and software to power AI clusters. At the time, ANET’s stock had declined 25% year-to-date in 2025, creating what Cramer called an “attractive entry point.”

Performance Since the Recommendation

- Q1 2025 Earnings Surprise: On May 6, 2025, ANET reported record revenue of $2.005 billion (up 27.6% YoY) and non-GAAP EPS of $0.65, surpassing consensus estimates. The stock surged 19% in the following month, closing at $86.45 by May 7, 2025.
- Valuation Dynamics: While Cramer highlighted ANET’s dip, its P/E ratio of 33x remains elevated compared to peers. Analysts argue this reflects its growth trajectory, but some hedge funds, like Artisan Mid Cap, trimmed positions in Q1 2025 due to “valuation discipline.”

Hedge Fund Sentiment and Institutional Backing

• Institutional Confidence: As of Q4 2024, 78 hedge funds held ANET stock, up from 70 in Q3 2024. Madison Mid Cap Fund cited ANET as a top contributor to its portfolio in Q4 2024, praising its AI trial success and robust core business.
• Analyst Upside: Barclays upgraded its price target to $126 (from $125), citing AI-driven revenue doubling by 2026 and a 20-year economic moat due to its differentiated hardware-software stack.

The Bulls’ Case: AI Infrastructure Dominance

1. Core Strengths: ANET’s AI-powered switches and software automate data center operations, reducing latency and improving scalability. This is critical for hyperscalers like cloud providers and enterprises deploying AI clusters.
2. Market Leadership: Gartner’s 2025 Magic Quadrant ranked ANET a leader in data center switching, underscoring its ability to execute and completeness of vision.
3. Margin Resilience: Despite rising production costs, ANET maintained a non-GAAP gross margin of ~63% in Q1 2025, signaling operational efficiency.

The Bears’ Concerns: Valuation and Competition

• Valuation Risks: At 33x forward earnings, ANET trades at a premium compared to its 5-year average P/E of 28x. Some analysts argue this leaves little room for error in meeting aggressive AI revenue targets.
• Competitor Pressure: Rivals like Cisco and Juniper are accelerating AI infrastructure investments, while cloud giants like Amazon and Google build in-house solutions, potentially eroding margins.
• Under-the-Radar Threats: The text highlights that “cheapest AI stocks” (trading at <5x earnings) may offer higher short-term returns, diverting investor focus from ANET’s premium valuation.

Conclusion: Cramer Was Right, but the Path Was Rocky

Jim Cramer’s April 2024 call to buy ANET at $70 proved strategically correct in hindsight. The stock’s 19% surge post-Q1 2025 earnings and institutional backing validate its position as a long-term play in AI infrastructure. Key data points reinforce this:
- Revenue Growth: ANET’s 27.6% YoY revenue expansion in Q1 2025 outperformed industry averages, driven by AI backend adoption.
- Hedge Fund Momentum: The 78 hedge funds holding ANET reflect confidence in its 20-year economic moat, as highlighted by Morningstar.
- Analyst Consensus: A ~34.3% upside potential (average estimate as of February 2025) suggests further growth, though risks remain.

However, Cramer’s recommendation should be contextualized:
- Short-Term Caution: The stock’s volatility post-recommendation (e.g., a 5% dip ahead of earnings) and margin pressures underscore the need for patience.
- Alternatives Matter: While ANET is a solid bet, investors seeking higher short-term returns may favor undervalued AI or energy infrastructure stocks, as noted in the text.

In conclusion, Cramer was right about ANET’s long-term potential in AI-driven networking. Yet, its premium valuation and competitive landscape mean investors should pair this stock with diversification into cheaper, high-growth AI plays to maximize returns. As the adage goes: “Buy the dip, but watch the P/E.”

With ANET targeting $1.5 billion in AI revenue by 2025—up from $750 million in 2024—the next 12 months will test whether its premium pricing is justified. For now, the data suggests Cramer’s call holds water—but the finish line is still in sight.