Trump’s new AI budget just passed — one stock could soar (From Behind the Markets)

If you’re searching for something on the internet and your web browser slows to a crawl, what’s the first thing you do? You hit the refresh button in hopes of speeding up the data and loading the website faster. It’s a similar concept to the one analysts at Piper Sandler believe will benefit companies like Arista Networks Inc. (NYSE: ANET) as AI hyperscalers face new bottlenecks in 2026.

Is it time to buy ANET shares? Clearly, the question isn’t whether Arista has tailwinds. It’s whether investors are willing to pay today’s valuation for the upside those tailwinds could deliver.

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Why Piper Sandler Upgraded Arista

Piper Sandler gave Arista Networks its first upgrade in several months on Jan. 5, moving the stock from ‘Neutral’ to ‘Overweight’ and boosting its price target from $145 to $159, representing nearly 15% upside from the current market price.

With this upgrade, 17 of the 22 analysts tracked by MarketBeat now have Buy ratings on the stock.

The upgrade comes as hyperscalers run into limitations connecting the thousands and thousands of GPUs they’ve purchased over the last few years.

Companies like Meta Platforms Inc. (NASDAQ: META) and Microsoft Corp. (NASDAQ: MSFT) first build out their chip racks, but then require crucial infrastructure upgrades to keep the ever-growing amounts of data flowing smoothly between processing units.

According to Piper Sandler, this “lag” creates an opportunity for Arista Networks, as these hyperscalers focus their 2026 capital expenditures on network upgrades and infrastructure rather than chips and hardware.

Bull Case for Arista Networks

If the bull case for Arista keeps gaining momentum, it’ll come on the back of these factors:

• Analyst Confidence: Piper Sandler isn’t the only firm bullish on Arista’s prospects. As mentioned, the stock is a consensus Buy. Additionally, the consensus price target is $164.44, which is even higher than Piper Sandler's latest target.
• Product Relevance: Arista’s product line has evolved with the needs of AI hyperscalers. Its 800G Ethernet platforms are being rapidly adopted to address bandwidth bottlenecks that are dragging down AI training performance, and its software-centric approach is turning customers away from the InfiniBand-based platform popularized by NVIDIA Corp. (NASDAQ: NVDA).
• Partnership Momentum: Arista has inked deals with AI industry titans, including Microsoft, Meta, and Oracle Corp. (NYSE: ORCL).

 

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Bear Case for Arista Networks

The outlook for Arista has improved over the last few months, but risks do remain, especially for value-conscious investors.

• Customer Concentration: Having big customers like Microsoft, Meta, and Oracle is great for boom times, but it also creates a bottleneck in Arista’s revenue streams. As Piper Sandler noted, these three clients account for more than 50% of Aristia’s total business. If even one suffers a drag on CapEx in 2026, Arista will feel those effects.
• Competitive Pressure: The networking industry is a vast segment of the tech sector, and Arista’s market share isn’t guaranteed to hold in the future. NVIDIA’s Spectrum X was launched as a direct competitor to Arista’s Ethernet platforms, and is already being adopted by Meta and Oracle.
• Valuation Concerns: Finally, there’s a good old-fashioned valuation issue with Arista. The stock trades at 62 times forward earnings and nearly 25 times sales, extremely lofty, even for a tech giant with 40% margins. The company is currently in the Goldilocks zone, where everything needs to go just right to justify this elevated multiple. 

 

Stock Price Reaction

ANET shares had been stuck in a prolonged period of range-bound trading, dipping under the 50-day simple moving average (SMA) in late October and consolidating between the 50-day and 200-day SMAs until this month. Positive headlines have finally broken the stock out of this range, and ANET burst through the 50-day SMA last week with strong momentum.

Despite the extended pullback, the long-term trend never turned bearish following the August Golden Cross. The Relative Strength Index (RSI) is also trending upward for the first time since August, providing evidence that the breakout has technical momentum underlying the fundamental tailwinds.

What to Watch Next

The next few weeks will be crucial for Arista Networks as companies in the AI industry lay out their blueprints for 2026. Here are some upcoming catalysts to watch for:

• Earnings: Arista Networks reports Q4 2025 earnings after the bell on Tuesday, Feb. 17, and investors will want to keep a close eye on the company’s 2026 margin guidance and revenue figures from the AI segment.
• Customer Spend Trend: How quickly are customers adopting the 800G Ethernet systems? Additionally, Arista plans to have 1.6T platform models available by year-end. If customers quickly adopt 1.6T Ethernet clusters, it will hasten the replacement cycle and boost Arista’s already growing sales pipeline.
• Capex Signals: Finally, what are the big hyperscalers doing? If companies like Meta and Microsoft announce increases to their 2026 AI capex plans, Arista Networks will be one of the biggest beneficiaries as networking solutions become a crucial part of the insatiable AI data center industry.

 

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