Arista Networks
shares are getting a post-earnings boost, aided by a bullish call from Morgan Stanley analyst Meta Marshall, who sees the company getting a big boost from AI-driven data-center buildouts.
Late Monday, Arista posted better-than-expected September quarter financial results, with revenue and profits topping Street estimates. The networking-infrastructure provider also provided financial guidance for the December quarter that was more upbeat than analysts had expected.
In a research note Monday, Marshall lifted her rating on Arista (ticker: ANET) shares to Overweight from Equal Weight. She raised her target for the stock price to $220, from $185.
Arista shares were 13% higher on Tuesday to $198.24, touching a new 52-week high at $198.98. The stock is up 63% so far in 2023.
Marshall sees Arista as the best way to take advantage of “the $25 billion AI networking market.” In particular, she sees Arista benefiting from the adoption of Ethernet networking in data centers, replacing a competing networking standard called Infiniband.
“We view Arista as the best way to play AI buildout within networking, and given that, we are willing to look past concerns on customer concentration and valuation,” she wrote.
Marshall said that the ethernet-networking opportunity is largest with cloud providers, where the company already has a strong relationship.
Microsoft
(
META
) and Meta Platforms (META) are the company’s largest customers, together accounting for more than 40% of revenue in the most recent fiscal year.
Marshall sees sales of AI networking hardware growing at a 19% annual compound rate through 2027, saying Arista should be “a share gainer within that opportunity.”
While the stock isn’t inexpensive, she said, “given the scarcity of assets who truly see benefit in this space, we think Arista is likely to continue to command a premium.”
Write to Eric J. Savitz at [email protected]
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