Arista is benefiting from the rapid growth of the cloud and AI markets.
But its dependence on big hyperscale customers is squeezing its gross margins.
A lot of of its near-term growth is already baked into its premium valuations.
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Arista Networks‘ (NYSE: ANET) stock has rallied more than 50% over the past 12 months. It also trades less than 10% below its all-time high from this January. The computer networking company impressed investors with its robust growth rates and exposure to the booming cloud and AI markets.
But will Arista’s stock soar even higher over the next year, or is it due to take a breather? Let’s review Arista’s growth rates, its near-term catalysts, and its valuations to decide.
Image source: Getty Images.
Arista controls a smaller slice of the networking market than Cisco Systems, but it differentiates itself from its bigger competitor in several key ways. Arista’s modular operating system, EOS, is compatible with a wider range of open networking protocols than Cisco’s systems, which are often known for locking its customers into its “walled garden.”
In addition, Arista focuses on selling lower-latency switches, which are optimized for hyperscale cloud networks, while Cisco bundles together a broader range of enterprise campus, branch, wide-area networking (WAN), and data center solutions.
Arista’s flexibility and scalability made it the preferred networking hardware and software provider for cloud and AI giants like Meta Platforms and Microsoft. Its CloudVision platform also helps those clients easily monitor and analyze their data center deployments. So while Cisco is still considered a “one stop shop” for big enterprise networking deployments, Arista is emerging as a higher-growth play on the expanding cloud and AI markets.
From 2019 to 2024, Arista’s revenue expanded at a compound annual growth rate (CAGR) of 24%. Its cloud and hyperscale markets continued to expand throughout the pandemic, and its tighter portfolio of products insulated it from the supply chain disruptions which impacted Cisco and other networking hardware companies.
In 2025, Arista’s revenue rose 19.5%, its adjusted gross margin rose 200 basis points to 64.6%, and its adjusted earnings per share (EPS) grew 31.2%. Here’s how rapidly it grew over the past year.
Metric
Q1 2024
Q2 2024
Q3 2024
Q4 2024
Q1 2025
Revenue Growth (YOY)
16.3%
15.9%
20%
25.3%
27.6%
Adjusted Gross Margin
64.2%
65.4%
64.6%
64.2%
64.1%
Adjusted EPS Growth (YOY)
39.2%
32.9%
31.1%
25%
30%
Data source: Arista Networks. YOY = Year over year.
Arista’s recent growth was largely driven by the rapid expansion of the cloud and AI markets. However, its gross margins are declining as it sells a higher mix of lower-margin, high-volume routers and switches to those big customers. It doesn’t have much pricing power against those cloud titans, which often demand higher-volume discounts.
At the same time, inflation, elevated interest rates, tariffs, and other macroheadwinds are driving its component and supply chain costs higher.
By comparison, Cisco’s adjusted gross margin expanded 30 basis points year over year to 68.6% in its latest quarter. Those higher margins reflect Cisco’s stronger pricing power, which it reinforces through its aggressive bundling strategies.
For the second quarter of 2025, Arista expects its revenue to rise 24.3% year over year as its adjusted gross margin dips to 63%. For the full year, analysts expect its revenue and adjusted EPS to grow 20% and 13%, respectively. Most of that growth should be driven by the growing adoption of its 800G Ethernet products for handling AI workloads.
Arista is still growing rapidly, but it can’t be considered a bargain at 50 times its trailing earnings. Cisco, which is growing at a much slower rate, trades at 28 times earnings.
For 2026, analysts expect Arista’s revenue and adjusted EPS to grow 18% and 17%, respectively, as the AI boom continues. If Arista matches those estimates and still trades at 50 times earnings, its stock price could rise more than 20% to $150 over the next 12 months. But if it trades at 30 times earnings, its stock could drop more than 25% to $90.
Therefore, Arista’s upside potential might be limited by its valuations over the next year as investors wait to see if its robust revenue growth can offset its declining gross margins. It might still eke out some modest gains, but it probably won’t replicate its rally from the past 12 months.
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Leo Sun has positions in Meta Platforms. The Motley Fool has positions in and recommends Arista Networks, Cisco Systems, Meta Platforms, and Microsoft. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
Where Will Arista Networks Be in 1 Year? was originally published by The Motley Fool
