Arista Networks, Inc. (ANET) | The Buildout — AI Infrastructure

The Verdict

Arista Networks builds the networking layer of the data center: the switches, routing platforms, optics and the EOS operating system that move traffic between servers and between AI accelerators. Its core business is Ethernet fabric for cloud and AI data centers, sold to cloud and AI titans, AI and specialty providers, and enterprises. Data-center and campus networking has "historically been dominated by Cisco," per the 10-K, with Dell/EMC, Extreme Networks, Hewlett Packard Enterprise, Huawei, Juniper Networks, Nvidia and white-box vendors also named. Campus, routing and software are smaller adjacencies that broaden the customer base. In AI clusters the network has to keep every accelerator busy, which is why this layer sits directly in the build-out's path.

Earnings Beat

Arista reported $3.04B of revenue in Q2 FY2026, up 37.7% year over year — the first $3B quarter, ahead of a ~$2.8B guide. Gross margin was 62.9%, operating margin 49.9% and operating cash flow ~$1.1B. The standout underneath the income statement was supply, with purchase commitments and deferred revenue both rising again.

Management tone: Management's tone on demand stayed expansive and its tone on supply improved from the prior quarter's alarm toward a named program, without becoming complacent: the CEO said Arista is "making solid progress here in addressing our tight supply chain" but also that the industry has a 2-year problem. Guidance confidence rose — the revenue guide was raised for the third time and the operating-margin target moved to 48-49% from ~46%. Management was candid that the Q2 gross-margin beat was probably 20-30 bps of tariff refund with the remainder mix and "not … a price increase," and deliberately reserved on how the $1.1B raise is allocated by segment.

Management Guidance

For FY2026 management guides revenue of ~$12.6B (40% growth), gross margin of 62-64% inclusive of anticipated supply chain cost increases for memory and silicon, operating margin of 48-49%, a ~21.5% tax rate; the formal AI fabrics and campus targets were held at their prior levels even as total revenue was raised. For Q3 FY2026 the guide is revenue ~$3.3B, gross margin ~63%, operating margin 48-49%, diluted EPS of $1.06-$1.08, ~1.279B diluted shares and a ~21.5% tax rate. Management describes the guide as supply-constrained: "if the supply was to release a little more, there is an opportunity to do better in the year."

Trajectory

Revenue is accelerating. Quarterly revenue ran $2.21B (Q2 FY2025) → $2.31B → $2.49B → $2.71B → $3.04B (Q2 FY2026), with the latest step a 37.7% year-over-year increase and the last two steps +8.9% and +12.1% sequentially. Margins are the other half of the story: on the audited trailing series the code-computed signals read gross, operating and EBITDA margins as compressing, even as EBITDA dollars grew to $1,424.7M in Q2 FY2026. Net income of $1,212.9M and TTM free cash flow of $5,155.3M keep cash conversion well above reported earnings.

The Model

The model projects FY+1 revenue of $12,800M with EBITDA of $5,862M (45.8% margin), and FY+2 revenue of $16,800M with EBITDA of $7,946M (47.3% margin). Near term, the anchor is the company's own FY2026 guide and 48-49% operating margin, backed by a purchase commitment balance that nearly tripled year over year and by multiyear agreements with leading vendors of strategic components. FY+2 depends on the AI fabric ramp broadening: 1.6T moving from H2 2026 trials into what management says will be real production in 2027, scale-up becoming a new entry in 2027 and beyond from 5-7 rack designs now in active design, and scale-across expanding into a market management sizes at $15B in four years and $15-20B by 2030.

Projections are the median of 5 independent model runs. The model’s revenue sits 18.4% above analyst consensus.

For FY2026 management guides revenue of ~$12.6B (40% growth), gross margin of 62-64% inclusive of anticipated supply chain cost increases for memory and silicon, operating margin of 48-49%, a ~21.5% tax rate; the formal AI fabrics and campus targets were held at their prior levels even as total revenue was raised. For Q3 FY2026 the guide is revenue ~$3.3B, gross margin ~63%, operating margin 48-49%, diluted EPS of $1.06-$1.08, ~1.279B diluted shares and a ~21.5% tax rate. Management describes the guide as supply-constrained: "if the supply was to release a little more, there is an opportunity to do better in the year."

What Could Go Right — and Wrong

Looking Ahead

Over the next 12 months the company has to convert its own supply bet into shipped revenue. The FY2026 guide of ~$12.6B and 48-49% operating margin is explicitly supply-constrained, and the $9.7B of purchase commitments — with memory secured for 2026 and visibility into 2027 — is what management has done about it. On the product side, 1.6T moves from H2 2026 trials toward what management says will be real production in 2027, scale-up stays a 2027-and-beyond entry, and pricing leverage is expected only towards the end of the year or into next year as backlog sells through. The Santa Clara build is due to complete by the end of FY2026.

Financials

Annual Summary

Key Ratios (Trailing)

The Company

Arista "delivers data-driven, client-to-cloud networking-as-a-service, anchored by its Extensible Operating System (EOS) and Network Data Lake (NetDL)," according to its 10-K. It sells to three customer sets — Cloud and AI Titans, AI and Specialty Providers, and Enterprise — across AI Centers, Data Centers, Campus Centers and WAN Centers. In FY2025 the core AI, cloud and data-center networking category was ~65% of revenue, with campus and routing adjacencies ~18% and software and services ~17%. The products doing the AI work are named in the filing: the 7800R AI Spine, the 7060 AI Leaf and the 7700R4 Distributed Etherlink Switch for scale-out, scale-up and scale-across.

Arista does not own fabs. Its primary manufacturing partners are Jabil, Sanmina and Foxconn Hon Hai, who manufacture internationally in Malaysia, Vietnam, Mexico and other countries, with product shipping to direct fulfillment facilities the 10-K lists as the United States, the Netherlands and Singapore. On the Q2 FY2026 call management described three contract manufacturers and three distribution facilities in the U.S., Asia and Mexico — a site list that does not reconcile with the 10-K's, and the source set flags that divergence as unresolved. Headquarters is a leased ~180,000 sq ft building in Santa Clara, California expiring March 2027, against a separately owned Santa Clara parcel purchased in 2021 for office, lab and data-center space, where construction is expected to complete by the end of FY2026.

Business Segments

Competitive Landscape

The filings say data-center and campus networking has historically been dominated by Cisco, with competition also coming from Dell/EMC, Extreme Networks, Hewlett Packard Enterprise, Huawei, Juniper Networks, Nvidia and white-box networking vendors that use open-source operating systems. In adjacent markets the filings name Cisco, Darktrace and ExtraHop in network detection and response, and Cisco, Gigamon, Keysight and Netscout in network packet brokers.

Supply Chain

Arista sits between component suppliers — Broadcom for switching silicon, plus memory, optics and PCB vendors — and large network operators: cloud and AI titans, neoclouds, AI labs and enterprises. No neighbor transcript in this evidence set mentions Arista by name.