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Investing.com -- Rosenblatt Securities on Tuesday raised its rating on Arista Networks (NYSE:ANET) shares to Neutral from Sell, citing two primary reasons for the revision.
The company’s shares rose more than 2% in premarket trading.
First, the brokerage pointed out Arista’s ability to potentially withstand a macroeconomic slowdown, with Arista’s second half of 2025 and 2026 forecasts appearing resilient.
This assessment comes after positive results from Calix (NYSE:CALX), a broadband solutions provider, which led Rosenblatt analysts to seek other companies with similar potential.
“Following our recent field work, we now think ANET could be another such company given bigger wins at Microsoft (NASDAQ:MSFT), Oracle (NYSE:ORCL) and Google (NASDAQ:GOOGL) than we previously expected,” Rosenblatt analyst Mike Genovese said in a note.
“It appears that increased tariffs have actually made White Box switching options from China and rest of Asia less attractive, benefiting Arista,” he added.
Moreover, Arista has a strong lineup of switches compatible with Linear-drive Pluggable Optics (LPO) transceivers, further reinforcing its competitive position.
The second reason is Rosenblatt’s previous Sell thesis, which has now played out. The thesis was based on concerns that the value of Arista’s Extensible Operating System (EoS) software would diminish in AI factory Data Centers.
The competitive landscape has evolved with entries from Nvidia (NASDAQ:NVDA) and momentum from Cisco (NASDAQ:CSCO) and Celestica (NYSE:CLS).
Arista’s operating margin guidance for 2025 is approximately 400 basis points lower than its actual operating margin for 2024, aligning with Rosenblatt’s expectations.
The revised price target for Arista is now set at $85, based on 30x Rosenblatt’s slightly below-consensus earnings per share (EPS) forecast for 2026.
Unlike other companies in their coverage, where Rosenblatt has theoretically reduced 2026 EPS for price targets due to macro risks, Arista and Calix are exceptions, with actual EPS being used in their models.
“To us, they look like two stocks where 2H25 and 2026 are least likely to be cut due to a macro slowdown,” Genovese said.
Rosenblatt’s recent field work indicates that Arista has won significantly larger contracts with Hyper Scale clients than previously expected.
The investment bank’s findings suggest that Arista could gain several hundred million dollars more from Microsoft over the next two to three years, with additional substantial gains from Oracle and Google, each potentially bringing in $100 million to $200 million over approximately two years.
The larger-than-anticipated wins have increased Rosenblatt’s confidence in Arista’s ability to meet its $750 million back-end AI revenue target for 2025.