JPMorgan raises Arista Networks stock target to $140 on Cloud capex

On Tuesday, JPMorgan maintained an Overweight rating on Arista Networks (NYSE:ANET) and increased the price target to $140 from the previous $115. The adjustment comes amid growing confidence in Arista’s role as a key beneficiary of the ongoing investment cycle in cloud capital expenditures (capex). This optimism is supported by robust capex guides from the past weeks and the rising validation of Ethernet as the go-to solution for large-scale data center expansions. The company’s strong market position is reflected in its impressive 18.19% revenue growth over the last twelve months, according to InvestingPro data.

Arista Networks, despite experiencing slower initial traction in AI revenue compared to peers, is expected to benefit from the widespread adoption of Ethernet by Tier 1 hyperscalers and Tier 2 cloud companies. This trend is anticipated to accelerate the company’s long-term growth rate and justify a premium valuation multiple relative to its historical average. Currently trading at a P/E ratio of 56.4x and maintaining a healthy gross margin of 64.41%, InvestingPro analysis indicates the stock is trading above its Fair Value. JPMorgan highlighted that the near-term outlook for 2025 is less clear, with uncertainties surrounding the timing of Ethernet deployments and potential upsides to the company’s conservative gross margin forecast, particularly given the possibility of tariffs.

The firm anticipates that revenue and margin improvements will materialize throughout the year, albeit more modestly than initially expected by investors. Additionally, Arista’s management is likely to remain cautious in their forecasts, preferring to base expectations on second-half demand visibility from customer orders rather than solely on customer capex guidance. The company’s solid financial foundation is evident in its exceptional current ratio of 4.47 and strong five-year revenue CAGR of 22%.

JPMorgan suggests that the fourth-quarter results may have a limited impact on consensus estimates for fiscal year 2025. With the stock trading at 51 times the next twelve months’ valuation multiple, the modest revisions to consensus earnings estimates might not meet investor expectations in the upcoming earnings announcement on February 18. Nonetheless, JPMorgan looks beyond these short-term concerns and has raised its December 2025 price target, bolstered by recent capex guidance from hyperscalers which underscores the sustainability of Arista’s growth drivers. For deeper insights into Arista’s valuation metrics and growth potential, investors can access comprehensive analysis and 16 additional ProTips through InvestingPro’s detailed research reports.

In other recent news, Arista Networks is making headlines with the announcement of a four-for-one forward stock split, aiming to make its shares more accessible to a wider investor base. The company is also gearing up for its fourth quarter earnings release amidst a favorable outlook for AI-networking demand, driven by encouraging financial performance from Celestica (NYSE:CLS) and AI investments from tech giants like Meta (NASDAQ:META) and Microsoft (NASDAQ:MSFT).

Furthermore, Arista is poised to benefit from the ’Stargate’ AI project, a $500 billion initiative led by OpenAI, SoftBank (TYO:9984), and Oracle (NYSE:ORCL) in collaboration with Microsoft. Analysts at Jefferies have expressed positive sentiment regarding Arista’s potential to capitalize on this opportunity, given its existing relationship with Microsoft.

Goldman Sachs maintains a Buy rating on Arista, anticipating more than 20% top-line growth for the company in 2024 and 2025. This optimism is supported by Arista’s leadership position in the AI networking sector and the ongoing upward revisions in cloud capital expenditures.

On the other hand, Piper Sandler’s Infrastructure Software (ETR:SOWGn) Bus Tour highlighted Arista’s view on the settled debate between InfiniBand and Ethernet due to growing GPU cluster sizes. These recent developments underscore Arista’s strong positioning in the AI-networking space and its potential for sustained growth.

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