On Thursday, Goldman Sachs adjusted its outlook on Arista Networks (NYSE:ANET), a leader in cloud networking solutions, by increasing the stock's price target to $356 from the previous target of $313. The firm maintained its Buy rating on the stock and revised its estimates based on several optimistic factors.
The firm's optimism is attributed to anticipated capital expenditure growth in 2024 and 2025 from Arista's key Cloud Titan customers, which include industry giants such as Meta (NASDAQ:META), Microsoft (NASDAQ:MSFT), and Oracle (NYSE:ORCL). This expected increase in spending is believed to support Arista's revenue guidance for 2024, assuming the revenue from Meta and Microsoft remains consistent as a percentage of their capital expenditures.
Another contributing factor to the positive outlook is Arista's involvement in Meta's large-scale AI Research SuperCluster (RSC). This involvement highlights the growing application of Ethernet in AI networking. Goldman Sachs also noted new data on AI Ethernet performance that emerged from Broadcom (NASDAQ:AVGO)'s AI Infrastructure Investment Meeting, which further supports the case for Ethernet's role in AI networking.
The continued growth in AI server shipment forecasts is yet another reason for the upgraded price target. The analyst specifically pointed out Meta's RSC infrastructure buildout planned for 2024 as a key development. This project is seen as a validation of Ethernet's competitiveness as an AI network fabric solution, which could potentially lead to an upside in Arista's financial estimates. The timing of the buildout and the subsequent revenue recognition are considered critical factors that could influence the company's financial performance.
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