Why Did the Switch Cross the Data Center?

Because Arista Made It 30% Faster Than Cisco Could

Arista Networks (ANET) | Current Price: $132.20 | December 2025

The Silent AI Infrastructure Winner

While NVIDIA grabs headlines and hyperscalers battle for GPU supremacy, one company quietly stitches the entire AI revolution together. Arista Networks doesn't build the brains of AI—it builds the nervous system. Every packet of data flowing between GPUs, every training run at scale, every inference query racing through a data center—Arista's switches make it happen.

Founded in 2004 by networking legends Andy Bechtolsheim and David Cheriton (early Google investors), Arista went public in 2014 at $584 million in revenue. A decade later? The company just crossed $7 billion and is gunning for $10.65 billion by 2026. This isn't growth—it's compound domination.

CEO Jayshree Ullal, who joined from Cisco, has orchestrated a systematic dismantling of her former employer's data center empire. In 2012, Arista held 3.5% market share in high-speed switching. By 2024, that number had surged to 27.5%, while Cisco's share collapsed from 78.1% to 29.9%.

The Essentiality Question: Can AI Train Without It?

Rating: 9/10 (Essential)

Modern AI clusters require massive bandwidth between thousands of GPUs. Without high-performance Ethernet switches, training runs would take months instead of days. Arista's 400G and 800G switches are the arteries of AI infrastructure.

Microsoft and Meta—Arista's two largest customers—are deploying AI at unprecedented scale. Arista's AI segment is on track with a $1.5 billion target for 2025 and aims for $2.75 billion in 2026 revenue, driven by partnerships with AI leaders like OpenAI and Anthropic. This isn't discretionary spend—it's operational necessity.

Moat Assessment: The EOS Ecosystem Advantage

Current Moats: 8/10 (Strong)

Arista's moat rests on three pillars:

• Single EOS Architecture: Unlike Cisco's fragmented product lines running multiple operating systems, Arista runs one codebase across all devices. This dramatically reduces customer complexity and creates deep switching costs.

• CloudVision Integration: Arista's network management platform creates stickiness through centralized visibility and automation. Once deployed, ripping it out means retraining teams and rebuilding workflows.

• Hyperscaler Relationships: Microsoft and Meta together account for roughly 40% of revenue. These aren't transactional customers—they're engineering partners co-developing next-generation solutions.

Moats Expanding: 7/10

Arista is a founding member of the Ultra Ethernet Consortium, alongside a powerful coalition of industry leaders including major customers (Meta, Microsoft), competitors (Cisco, Broadcom), and other key technology providers (AMD, Intel). The recent VeloCloud SD-WAN acquisition expands its enterprise footprint. However, NVIDIA's Spectrum-X represents a credible new threat, and customer concentration remains a double-edged sword.

Financial Fortress: Numbers That Would Make Buffett Smile

Balance Sheet Strength: 10/10 (Fortress)

ANET is debt free. ANET has not had any debt for past 5 years. With $8.1 billion in cash (56% of assets) and zero debt, Arista can invest through downturns, defend its market position, and expand globally without relying on outside financing.

EPS Acceleration: 8/10 (Strong)

The EPS trajectory tells a compelling story: Arista Networks 2022 annual EPS was $1.07, a 62.61% increase from 2021. Arista Networks 2023 annual EPS was $1.65, a 54.21% increase from 2022. Arista Networks 2024 annual EPS was $2.23, a 35.15% increase from 2023. Q2 2025 earnings per share reached $0.73, up 37.7% from the prior year.

Net Margin Expansion: 9/10 (Rapidly Improving)

Arista posted a 40.3% net margin in Q2—higher than Apple, Alphabet, or Microsoft. Gross margins hover at 65%, while operating margins exceed 45%. These numbers rival software pure-plays despite Arista shipping physical equipment.

Capital Efficiency: The ROIC Machine

ROIC Profile: 10/10 (Exceptional)

The return on invested capital started at 36.23% in 2020, peaked at 53.84% in 2021, declined to 38.8% in 2022, then rose steadily to reach 57.91% by 2024. Against a WACC of approximately 11%, this represents extraordinary economic value creation. The median ROIC for technology hardware companies sits around 10-15%. Arista operates at 4x industry norms.

Reinvestment Rate: 6/10 (Moderate)

Arista's asset-light model requires minimal capital expenditure (under $100M annually on a $7B+ revenue base). R&D runs at 14-15% of revenue—substantial but consistent. The company reinvests through talent acquisition and product development rather than physical plant expansion.

Capital Return: 7/10 (Buyback Focus)

No dividend, but aggressive share repurchases. The share count has declined slightly despite equity compensation. Management clearly prefers returning capital via buybacks over dividends—a sensible approach for a growth company.

The Hard Part: Valuation

Valuation (Reverse DCF): 4/10 (Fully Valued)

At $132, Arista trades at approximately 50x trailing earnings and 40x forward estimates. The reverse DCF math is demanding:

• Current market cap: ~$165 billion

• Less cash: ~$155 billion enterprise value

• TTM free cash flow: ~$4 billion

• Implied growth to justify valuation: 18-20% annually for a decade

Is 20% growth for 10 years achievable? The company raised its 2025 annual growth target to 25%, now aiming for $8.75 billion in revenue. The AI infrastructure buildout provides visibility. But the market has already priced significant success.

Investment Scorecard

OVERALL SCORE: 78/100

The Verdict: Quality Meets Price

Arista Networks represents a rare combination: a dominant competitive position in a structurally growing market, world-class unit economics, and a management team with a proven track record. The company checks nearly every quality box.

The caveat? The market knows all this. At 50x earnings, Arista trades as a quasi-software company despite physical product dependencies. For patient capital allocators, the path forward likely involves building a position opportunistically on volatility rather than chasing at all-time highs.

For long-term compounders, Arista belongs on the watchlist. The business earns an A; the current price deserves a B-. The combination yields a position worth owning—but sizing appropriately for valuation risk. Right now we own ANET, and have more AI stocks on our watchlist, which you can access in real-time in our community.

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