TenQ

The Arista Networks story

Arista Networks makes network switches and software for cloud providers, AI data centers and enterprises, with growth hinging on whether its Ethernet platforms can capture expanding AI networks while preserving margins.

Written from Arista Networks's own filings with the SEC, and rewritten when it publishes a new earnings release. Updated 2026-09-30.

  • $204.92share price, last close
  • $258.5Bmarket value
  • 29/36TenQ Score checks passed
  • 21.3%growth a year the price assumes

The story in brief

  • Growth accelerated. Revenue reached $3.036 billion in the quarter to June 2026, up 37.7% from a year earlier, versus 32.6% growth over the last twelve months.
  • Margins diverged. In the quarter to June 2026, GAAP operating margin rose to 45.4% from 44.7% a year earlier, while GAAP gross margin fell to 62.9% from 65.2%.
  • Cash supports expansion. Arista generated $5.2 billion of free cash flow over the last twelve months and held $13.3 billion in cash and short-term investments with $0 total debt.

What drives the business

  • Arista's long-term strategy extends its high-speed Ethernet switching business across AI networks, data centers, enterprise campuses and wide-area networks using a common software foundation of EOS, NetDL and CloudVision.
  • Its customers range from large cloud and AI providers to enterprises, with its largest customer relationships accounting for 26% and 16% of revenue in the year ended December 2025.
  • Etherlink addresses AI networks connecting accelerators across racks and locations, while Arista sees a further opportunity as connections within racks move toward open Ethernet standards.
  • The 1.6 Tbps AI platforms introduced in the quarter to June 2026 include the 7060XE7 Series, offering up to 100 Tbps of system bandwidth and approximately 60% lower interconnect power consumption than traditional pluggable optics.
  • Campus switches, wireless access points and the added VeloCloud SD-WAN portfolio broaden Arista's enterprise reach, although products still accounted for 86% of revenue in the quarter to June 2026.

What the price assumes

At $204.92 per share, the reverse DCF implies that free cash flow after stock pay grows 21.3% a year for ten years, using a 10.2% discount rate.

Arista delivered 41.9% annual growth in that measure over the last 10 years, while the TenQ check sets a 22.9% bar by slowing that record halfway toward 4%.

The implied growth rate falls below that bar, but Arista passes only 1 of 6 Value checks, with a price to earnings ratio of 64.6x and a free cash flow yield of 2.0%.

Value ANET on your own assumptions

What could change the story

  • Revenue concentration makes changes in spending by Arista's largest customers consequential, even as the company expands its enterprise business.
  • Arista depends primarily on Broadcom for switching chips, and key component suppliers generally do not have written agreements guaranteeing supply.
  • Nvidia's InfiniBand and NVLink compete with Ethernet in AI networks and are often packaged with its GPUs, while Cisco and other networking vendors compete across Arista's broader markets.
  • The gross margin decline in the quarter to June 2026 leaves open whether operating efficiency can continue offsetting pressure on product profitability.
  • The 2.0% free cash flow yield is below its historical 3.5%, making sustained cash generation an important part of the valuation story, particularly after accounting for $502 million of stock-based pay over the last twelve months.

What to watch next

  • For the third quarter of 2026, Arista expects approximately $3.3 billion in revenue and non-GAAP diluted net income per share between $1.06 and $1.08.
  • The next release will show whether gross margin stabilizes and how operating margin compares with the 49.9% non-GAAP margin achieved in the quarter to June 2026.
  • Deferred revenue stood at $6.9 billion at the end of June 2026, making delivery of prepaid switches and support, alongside fresh customer prepayments, important measures of demand and cash generation.
  • Adoption of the new Etherlink platforms and growth in campus networking will show how Arista's AI expansion and enterprise diversification are progressing.

Sources

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