Earnings Recap — Q2 FY2026
CY Q3 2026 · Reported August 4, 2026 · Beat 7 of last 7 quarters
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Arista's record quarter and raised guidance underscore the accelerating demand for Ethernet-based AI fabrics, particularly in scale-out and scale-across deployments. The company's aggressive supply chain investments—including tripled purchase commitments and new liquid cooling capabilities—signal that AI infrastructure buildout is intensifying, with Arista positioning to capture a larger share of the AI networking TAM. The company's ability to secure memory and silicon supply through 2027 suggests sustained multi-year demand from hyperscalers and neoclouds.
Arista reported Q2 revenue of just over $3 billion, up 37.7% year-over-year and above guidance, driven by AI and enterprise customers. Gross margin was 63.4%, down from 65.6% a year ago but up from 62.4% last quarter, benefiting from tariff refunds and customer mix. Operating income was $1.5 billion, representing a 49.9% operating margin, and diluted EPS was $1.02, up 39.7% year-over-year. The company generated $1.1 billion in operating cash flow, ended with $13.3 billion in cash, and increased purchase commitments to $9.7 billion. Management highlighted strong progress in supply chain improvements, including securing memory supply through 2027 and establishing a liquid cooling supply chain.
Management raised 2026 revenue guidance for the third time this year to approximately $12.6 billion, implying 40% annual growth, an increase of $1.1 billion over the May projection. They maintained the AI fabrics goal of at least $3.5 billion and campus goal of at least $1.25 billion, but expect all product sectors to contribute to the incremental revenue. Gross margin guidance for the year remains at 62% to 64%, with operating margin target raised to 48% to 49%. Supply chain constraints are expected to persist industry-wide until 2028, but Arista's proactive measures—including tripled purchase commitments, expanded vendor qualification, and new liquid cooling supply chain—are expected to drive improvements in the second half of 2026. Management expressed confidence in demand, and indicated there is potential upside if supply releases further.
“Arista is experiencing significant demand to achieve our first $3 billion quarter in revenue. To put this in perspective, just 5 years ago, our entire year was $2.9 billion in 2021.”
on Revenue milestone
“The industry is going to have a 2-year problem. I don't think we get out of it as an industry until 2028. But Arista is taking individually and specifically steps in the first half of this year that we believe will have results in the back half of this year.”
on Supply chain outlook
“We are now projecting 40% annual growth, which is an incremental $2.1 billion over our Analyst Day goal of $10.5 billion and an incremental $1.1 billion over our recent projections of $11.5 billion in May of 2026.”
on 2026 guidance raise
As AI networking becomes more complex and system-level, does that increase the value of an integrated networking platform versus white box approaches? Are customers rethinking build versus buy?
Jayshree noted that white box is tactical for simple use cases, but the complexity of scale-out and scale-across—requiring consistent performance, traffic engineering, and security—favors Arista's system-wide Etherlink portfolio with EOS features like MRC and SRv6. She emphasized that box-by-box approaches can slow job completion significantly.
You raised 2026 revenue guidance substantially but kept AI and campus targets unchanged. Can you explain the thought process and what you're seeing in other verticals?
Jayshree said the question is not whether AI or campus numbers will go up—they will—but by how much. She wants to give customers priority and Todd's team flexibility to ship what they can, so they are not holding to a specific number. All product sectors are expected to contribute to the incremental $1.1 billion.
Given supply chain improvements, can you revisit your thoughts on adding a 10% customer? Do the two Ms remain 10% plus customers?
Jayshree confirmed commitment to Microsoft and Meta as long-term partners and said she fully expects 1, maybe 2 additional 10% customers, but wants flexibility on which product sectors and customers as they ship.