Are NVIDIA's Ethernet Wins Signs of Hope or Horror for Arista?
Since achieving an all-time high closing price of nearly $130 on Jan. 21. Arista Networks (NYSE: ANET) has been a big disappointment to shareholders. As of the June 4 close, the tech stock remains down around 27% from its all-time closing high.
However, Arista’s share price has experienced a massive recovery since the end of March.
So, can Arista shares continue to recover? Is the company still positioned for long-term success despite NVIDIA (NASDAQ: NVDA) ramping up competition? Several Wall Street analysts have recently raised their price targets on the stock despite this mounting pressure.
Arista’s Business Continues Chugging Along, But Tariff Uncertainty Is a Risk
Arista’s financial results in 2025 have been strong so far. In both reports released this year, the company beat expectations on sales and adjusted earnings per share (EPS). The company’s sales guidance for Q1 lagged expectations while slightly exceeding expectations for Q2.
Both reports saw sales grow by more than 25%, significantly faster than any report released in 2024. The company’s adjusted operating margin continues to hover around 47% to 48%. Overall, analysts are forecasting full-year sales growth of just under 20%, almost identical to 2024. However, analysts expect the adjusted operating margin for the full year to drop from 47.5% to around 45%. They also peg full-year EPS growth at less than 13%, compared to nearly 31% in 2024.
The decrease in margin expectations is partially due to tariffs. Arista has a significant part of its supply chain in Vietnam and Malaysia. Reciprocal tariffs on these countries of 46% and 24%, respectively, are currently paused. However, that pause ends on July 9. The United States may impose these tariffs if the countries do not reach a trade deal by that point. Arista has chosen not to update its full-year guidance until it gains certainty on these tariffs.
Luckily for Arista, Vietnam and Malaysia are on a list of 20 economies in which the Trump administration is prioritizing tariff talks. Still, this tariff issue creates a significant amount of uncertainty around Arista’s near-term prospects.
NVIDIA Is Stepping on Arista’s Toes, But That May Not Be a Bad Thing
Further concern surrounding Arista comes from the fact that NVIDIA may be stealing away some of Arista’s biggest current or potential customers. NVIDIA launched its Spectrum-X Ethernet switches back in mid-2023. In its last earnings call, NVIDIA said it added Alphabet’s (NASDAQ: GOOG) Google Cloud and Meta Platforms (NASDAQ: META) to its list of Spectrum-X customers. Meta and Microsoft (NASDAQ: MSFT) are Arista’s two biggest customers. Google and Amazon (NASDAQ: AMZN) have been resistant to adopting the company’s systems.
Despite this news from NVIDIA, it doesn’t necessarily spell doom for Arista. Microsoft Azure was already a Spectrum-X customer, and Arista’s revenue growth hasn’t slowed. This suggests that revenue coming from Meta could remain strong. Still, NVIDIA certainly poses a growing competitive threat to Arista. This competition could lower margins and limit growth prospects.
However, NVIDIA’s push into Ethernet significantly validates Arista’s technology. NVIDIA has traditionally focused on another type of networking technology, called InfiniBand. There has been much debate over recent years on whether InfiniBand or Ethernet would become the networking solution of choice for AI data centers. NVIDIA’s Spectrum-X launch and success add credence to the idea that the balance of power is shifting towards Ethernet. In the grand scheme of things, this is good for Arista. The company’s growth can benefit as the Ethernet pie gets larger, despite NVIDIA’s entrance. Notably, analysts at Citi largely agree with this sentiment.
Arista is also not without powerful allies. The company uses Broadcom’s (NASDAQ: AVGO) Tomahawk chips in its switches. Broadcom just started shipping Tomahawk 6. It has double the bandwidth of any Ethernet switch chip currently available on the market, putting Arista in an advantageous position.
Analysts See Moderate Upside, Long-Term Potential Remains Significant
MarketBeat tracked several analysts who updated their price targets on Arista after its latest earnings release on May 6. The average of these updated targets is just under $106.
This implies upside of around 11% from the stock’s June 4 closing price.
Overall, given tariff uncertainty, it is difficult to say at this point whether Arista's rally will continue in the near term. However, the company's long-term prospects remain solid.
The expansion of the Ethernet market is set to benefit the company.
Additionally, its 15-year partnership with Broadcom should help Arista stay at the technological forefront.
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