Arista Networks, Inc. (ANET) | The Buildout — AI Infrastructure
The Verdict
Arista Networks designs and sells Ethernet-based networking equipment and software for data centers and AI clusters. The company does not make AI compute; it provides the switches, routing, optics, and EOS software that connect AI accelerators and allow clusters to operate at scale. Its role in the buildout is to supply the fabric that ties together AI infrastructure across scale-out, scale-across, and eventually scale-up use cases.
| Market Cap | — |
| Revenue (TTM) | $9.7B |
| Revenue Growth | +30.6% |
| EBITDA Margin (TTM) | 43.6% |
| Net Cash | $12.4B |
| Earnings Beats | 7 of 7 |
| P/E (TTM) | — |
| EV/EBITDA (TTM) | — |
What We Like
- Etherlink AI fabric cumulative customers exceeded 100 in Q2 FY2026, up from 4–5 in 2024.
- FY2026 AI fabrics target is at least $3.5B, with CEO citing at least $3.6B overall AI target — more than doubling AI sales annually.
- Revenue guide raised three times to ~$12.6B, 40% growth, while operating margin guide raised to 48%–49%.
- Supply-chain commitments scaled: purchase commitments $9.7B, memory secured into 2027, liquid-cooling chain established.
- Q2 operating margin was 49.9%, with operating income $1.5B.
What We’re Watching
- Whether supply releases enough to beat the ~$12.6B FY2026 guide; CFO said more supply could produce upside.
- Whether 1–2 new 10% customers appear in 2026 as management expects.
- Gross margin against 62%–64% range; tariff refunds are non-recurring and price increases only help late 2026 or 2027.
- 1.6T trials H2 2026 convert to production in 2027; scale-up remains 2027+.
The thesis is intact and strengthening on demand and revenue, but constrained by supply. Management delivered a first $3B quarter, raised the guide for the third time, and expanded operating margin guidance, yet explicitly warns the industry supply problem persists until 2028. The open question is whether secured supply converts to revenue fast enough to outrun competitive challenges from Cisco, NVIDIA, and HPE.
Earnings Beat
Q2 FY2026 revenue was just over $3.0 billion, up 37.7% year over year, above the ~$2.8 billion guide. Gross margin was 63.4%, down from 65.6% a year earlier but up from 62.4% in Q1; operating margin was 49.9%. Deferred revenue reached ~$6.9 billion, and purchase commitments rose to $9.7 billion.
| Metric | Q1 FY2026 | Q4 FY2025 | Q1 FY2025 | YoY |
|---|---|---|---|---|
| Revenue | $2.7B | $2.5B | $2.0B | +35.1% |
| Gross margin | 61.9% | 62.9% | 63.7% | -180bps |
| EBITDA | $1.2B | $1.1B | $873M | +35.4% |
| EPS | $0.80 | $0.75 | $0.64 | +26.2% |
| Purchase commitments | $9.7B | $8.9B | $3.6B | Nearly triple |
versus guide, you’ll see there’s probably 20 to 30 bps of tariff refund and the remainder more of a mix equation.— Chantelle Breithaupt, CFO, August 4, 2026
Management tone: Management shifted from a Q1 tone of strong demand and constrained supply to a Q2 tone that was more constructive but still measured. They delivered a large beat and a third guide raise, but repeatedly refused to declare the supply problem solved, warning the industry has a two-year problem until 2028. Management was direct on supply and tariff refunds, but less transparent on the composition of the $1.1 billion raise and on naming expected 10% customers.
Management Guidance
For Q3 FY2026, management guided revenue of ~$3.3 billion, gross margin of ~63%, operating margin of 48%–49%, and diluted EPS of $1.06–$1.08 on ~1.279 billion shares. For FY2026, revenue was raised to ~$12.6 billion / 40% growth, gross margin maintained at 62%–64%, operating margin raised to 48%–49%, tax rate maintained at 21.5%, campus revenue at least $1.25 billion, and AI fabrics at least $3.5 billion (CEO also cited an overall AI target of at least $3.6 billion). Management said the guide is based on supply confidence, with visibility about two quarters.
Trajectory
Revenue is accelerating: Q2 FY2026 revenue of just over $3.0 billion grew 37.7% year over year, up from 35.1% in Q1 FY2026, and Q3 guide is ~$3.3 billion. Gross margin declined 220 bps year over year to 63.4%, but improved 100 bps sequentially on tariff refunds and mix. Operating margin expanded to 49.9% in Q2 and the FY2026 operating margin guide was raised from ~46% to 48%–49%, showing strong flow-through even as gross margin stays under pressure.
The Model
The model projects FY+1 revenue of $11,700 million and EBITDA of $5,078 million (43.4% margin), rising to FY+2 revenue of $14,800 million and EBITDA of $6,512 million (44.0% margin). Near-term revenue is anchored by supply-constrained AI fabric and data center demand, with operating leverage from a raised operating margin guide. FY+2 is driven by the 1.6T product cycle entering production in 2027 and early scale-up Ethernet opportunities.
| Metric | FY2025 | Next FY (E) | Following FY (E) |
|---|---|---|---|
| Revenue | $9.0B | $12.8B | $16.5B |
| YoY Growth | — | +42.1% | +28.9% |
| EBITDA | $3.9B | $5.8B | $7.8B |
| EBITDA Margin | 43.6% | 45.2% | 47.0% |
Projections are the median of 5 independent model runs. The model’s revenue sits 15.0% above analyst consensus.
For Q3 FY2026, management guided revenue of ~$3.3 billion, gross margin of ~63%, operating margin of 48%–49%, and diluted EPS of $1.06–$1.08 on ~1.279 billion shares. For FY2026, revenue was raised to ~$12.6 billion / 40% growth, gross margin maintained at 62%–64%, operating margin raised to 48%–49%, tax rate maintained at 21.5%, campus revenue at least $1.25 billion, and AI fabrics at least $3.5 billion (CEO also cited an overall AI target of at least $3.6 billion). Management said the guide is based on supply confidence, with visibility about two quarters.
What Could Go Right — and Wrong
- Component supply releases enough for revenue to exceed the FY2026 guide.
- AI fabrics grows more than 100% to at least $3.5 billion–$3.6 billion, with Etherlink customers already over 100.
- 1–2 new 10% customers appear, broadening the base beyond Microsoft and Meta.
- 1.6T trials convert to production in 2027, adding a new product cycle.
- Scale-across becomes a large second leg, targeting a $15–20 billion TAM by 2030.
- Industry supply tightness persists into 2028, capping revenue below the guide.
- Purchase commitments of $9.7 billion and inventory of $2.5 billion could cause cash-flow timing volatility.
- Customer concentration (42% from two customers) and mix pressure keep gross margin at the low end of 62%–64%.
- Competitive wins by Cisco, NVIDIA, HPE, and Celestica take share in scale-across and scale-up.
- Deferred revenue and extended acceptance cycles create a revenue-recognition air pocket with ~$6.9 billion in deferred revenue.
Looking Ahead
The next 12 months center on supply conversion and product-cycle milestones. Management expects H2 2026 1.6T trials, 1.6T production in 2027, Santa Clara expansion completion by end of FY2026, and scale-up Ethernet rack designs mostly in 2027+. The September 8, 2026 security webinar with Anthropic and Palo Alto Networks may preview AI lab relationships. Q3 and Q4 FY2026 results will show whether the FY2026 guide is met and how the incremental revenue is split across AI, front-end, campus, and routing.
- September 8, 2026Security webinar with Anthropic and Palo Alto Networks — Tests AI lab relationship and network security positioning.
- H2 20261.6T Ethernet trials — Trials with single-digit very large customers; production set for 2027.
- End of FY2026Santa Clara expansion completion — New office, lab, and data center capacity; Q2 capex $29.7M.
- 20271.6T production scale — Converts trials into revenue; liquid-cooling readiness is a gate.
- 2027Scale-up Ethernet rack designs — 5–7 active engagements; tests Ethernet scale-up adoption.
- 2027Open CPO examples — Early open CPO/NPO trials; broader CPO expected 2028–2029.
Financials
Annual Summary
| Metric | FY2024 | FY2025 | TTM | YoY |
|---|---|---|---|---|
| Revenue | $7.0B | $9.0B | $9.7B | +28.6% |
| Gross Margin | 64.2% | 64.1% | 63.5% | 5bps |
| EBITDA | $3.0B | $3.9B | $15.6B | +30.7% |
| EBITDA Margin | 42.9% | 43.6% | 43.6% | +69bps |
| Net Income | $2.9B | $3.5B | $3.7B | +23.1% |
| Free Cash Flow | $3.7B | $4.3B | $15.8B | — |
| Net Cash | — | — | — | — |
Key Ratios (Trailing)
- P/E TTM—
- EV/EBITDA TTM—
- EV/Revenue TTM—
- Price/FCF TTM—
- Gross Margin (TTM)63.5%
- EBITDA Margin (TTM)43.6%
- Net Margin (TTM)38.3%
- ROIC289.5%
- FCF Conversion124.6%
- SBC / Revenue4.8%
The Company
Arista Networks is a data-driven, client-to-cloud networking company anchored by its Extensible Operating System (EOS) and Network Data Lake (NetDL). It sells Ethernet switches, routing, optics, and software that connect AI accelerators and data centers; it does not sell AI compute. The company serves cloud and AI titans, AI and specialty providers, and enterprise customers across AI centers, data centers, campus centers, and WAN centers.
Arista operates as one reportable segment and outsources manufacturing to Jabil, Sanmina, and Foxconn Hon Hai, with facilities in Malaysia, Vietnam, Mexico, and other countries, plus direct fulfillment in the United States, Netherlands, and Singapore. It relies primarily on Broadcom for switching chips. Revenue splits approximately 65% Core, 18% Cognitive Adjacencies, and 17% Cognitive Networks / Software & Services.
Business Segments
Competitive Landscape
The 10-K names Cisco as the leader in data center and campus networking competition, with other named competitors including Dell/EMC, Extreme Networks, Hewlett Packard Enterprise, Huawei, Juniper Networks, Nvidia, and white-box networking vendors. Arista claims #1 market share in high-speed switching above 10-gigabit Ethernet for 2025. Neighbor read-throughs show active competition: Cisco expects ~$9 billion in hyperscaler AI orders in FY2026, NVIDIA says Spectrum-X is larger than all Ethernet network peers combined, and HPE/Celestica are building scale-up switches for AMD Helios.
- CiscoNamed as lead competitor in 10-K; neighbor read-through expects ~$9B hyperscaler AI orders in FY2026 and multiple scale-across design wins.
- NVIDIANamed competitor; Spectrum-X claimed larger than all Ethernet network peers combined, and NVLink limits near-term scale-up participation with NVIDIA systems.
- Hewlett Packard EnterpriseNamed competitor; expects FY26 Networks for AI order target of at least $2B and developing scale-up switch for AMD Helios.
- Juniper NetworksNamed in 10-K as competitor; not discussed in source.
- CelesticaNeighbor read-through: ramping 1.6T switch programs, won a 1.6T co-packaged optics switch award.
Supply Chain
Arista sits between merchant silicon and hyperscaler/enterprise AI networking demand. It designs the system and software, sources switching chips primarily from Broadcom, and outsources manufacturing to Jabil, Sanmina, and Foxconn Hon Hai. Management describes industry-wide shortages across wafers, silicon, CPUs, optics, and memory, with lead times around 52 weeks.
More on ANET: Earnings recap