Arista Networks (NYSE: ANET) stock has soared 2,330% since January 2015. But shares have declined 12% since the company announced a 4-for-1 stock split on Nov. 7.
Investors have two reasons to think the price is headed higher in the coming months. First, since 1980, companies have seen their share prices increase by an average of 25% during the year after a stock split announcement, according to Bank of America.
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Second, Wall Street anticipates healthy returns for Arista shareholders during the next year. The average 12-month target price is $108 per share, which implies 13% upside from its current share price of $95.
Here’s what investors should know about this artificial intelligence (AI) stock.
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Arista is the market leader in high-speed Ethernet switches
Arista specializes in high-performance networking solutions for enterprise campus and cloud data centers. The company complements its hardware portfolio, including switches and routers, with adjacent software for network automation, monitoring, and security. Research company Gartner recently recognized Arista as the technology leader in data center switches. The report highlighted its consistent innovation, product roadmap, and network management software as key strengths.
Arista has differentiated itself with its Extensible Operating System (EOS). Whereas Cisco deploys multiple operating systems across different devices, making network management more complicated, Arista EOS runs across its entire product portfolio, letting customers deploy a seamless network that spans public, private, and hybrid clouds.
Importantly, Arista dominates the high-speed Ethernet switch market, meaning switches that transfer data at 100-plus gigabits per second. The company captured about 43% market share last year, three times more than its closest competitor Cisco. Leadership in that segment means Arista is well positioned to benefit as AI creates demand for faster networking solutions.
Arista has a large opportunity in artificial intelligence networking
A data center network has two distinct components: the front end and back end. The front end of a network moves traffic between endpoint (user-facing) devices and servers, while the back end of a network moves traffic between servers. At present, Ethernet is the industry standard in front-end networking for AI workloads, while InfiniBand is the industry standard in back-end networking for AI workloads.
However, Arista expects Ethernet switches to become an increasingly popular choice for back-end networks in the coming years. “We naturally see the deployment of more back-end clusters resulting in more uniform compute, storage, and memory,” CEO Jayshree Ullal told analysts last year. That puts Arista in front of a large market opportunity.
Bloomberg estimates AI-related Ethernet switch sales for front-end and back-end networks will grow at 41% annually and 51% annually, respectively, through 2028. In that scenario, cumulative spending in those areas would exceed $9 billion in three years. Comparatively, Arista estimates AI sales will total $1.5 billion in 2025. That figure could double or even triple by 2028 because the company dominates the Ethernet switch space.
Arista stock trades at a somewhat expensive valuation
Wall Street estimates Arista’s earnings will increase at 16% annually through 2028. That makes the current valuation of 38 times earnings look somewhat expensive.
However, analysts have consistently underestimated the company. Arista topped the consensus earnings estimate by an average of 14% in the last six quarters. And that trend may continue as demand for AI networking increases.
Importantly, Arista stock closed near $108 per share on Nov. 7, the day the company announced its 4-for-1 stock split. History says the share price will advance 25% to $135 during the subsequent year, which implies 42% upside from its current share price of $95. But that may be unrealistic, given the economic uncertainty created by President Trump’s tariffs. However, patient investors should consider buying a small position in this AI stock today.
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Bank of America is an advertising partner of Motley Fool Money. Trevor Jennewine has positions in Arista Networks. The Motley Fool has positions in and recommends Arista Networks, Bank of America, and Cisco Systems. The Motley Fool recommends Gartner. The Motley Fool has a disclosure policy.
