The AI networking space is heating up in 2025, and not in a way that favors everyone. Arista Networks Inc (ANET), long a heavyweight in high-performance cloud networking, suddenly finds itself in the crosshairs of a market shift it didn’t see coming.
Nvidia (NVDA), the leader in AI chips, is now setting its sights on the Ethernet turf. Equipped with upcoming Quantum-X switches boasting 1.6T speeds and a timeline that beats rivals by a full year, Nvidia is not just entering the market, but could be redefining the playing field.
BNP Paribas took note and hit Arista with a downgrade earlier in June. For Arista, survival now hinges on reinvention, fast execution, and a serious rethink of its AI roadmap.
Santa Clara-based Arista Networks (ANET) is a leading player in cloud networking, specializing in high-performance Ethernet switches for large-scale data centers and enterprise environments. The company has built a reputation for delivering software-driven networking solutions powered by its proprietary Extensible Operating System (EOS), which offers scalability, programmability, and reliability.
Arista commands a market cap of $119.3 billion, underscoring its significance in the tech and networking industry. ANET stock has dipped by 12.9% in 2025 due to a mix of rising competitive pressure, shifting demand, and macroeconomic uncertainty. Investors are increasingly wary of Nvidia’s aggressive entry into AI-optimized Ethernet switches, which threatens Arista’s core market share.
Yet, over the past 52 weeks, ANET rose 15.2%, surging by over 10.8% over the past three months alone.
ANET stock is not cheap, priced at 39.9 times forward adjusted earnings and 16.5 times sales, trading well above the sector medians and even its historical averages. That premium once made sense, thanks to Arista’s Ethernet dominance in AI. But with Nvidia bulldozing into the same space, that crown feels shaky. Premiums only last with a wide moat, and right now, Nvidia is already halfway across Arista’s shrinking trench.
Arista Networks reported a stronger-than-expected first quarter of 2025 on May 6, crossing $2 billion in revenue for the first time, up 27.6% year over year. GAAP profits hit $813.8 million or $0.64 a share, while non-GAAP earnings reached $826.2 million or $0.65 per share, easily topping last year’s $0.50.
What’s fueling the charge is solid demand from cloud giants, AI-driven data centers, and campus enterprises – all attracted by Arista’s cutting-edge portfolio of advanced networking solutions. New innovations, like Cluster Load Balancing, enhanced observability tools tailored for AI, and an upgraded EOS platform, helped seal deals and expand customer relationships.
Margins held firm, with non-GAAP gross margin coming in at 64.1%, just a hair shy of Q4 levels. Cash from operations climbed to $641.7 million, up from $513.8 million a year ago, while Arista’s cash and cash equivalents amounted to $1.8 billion. A $787 million stock buyback, plus a fresh $1.5 billion authorization, added extra shine.
Looking ahead, management guided Q2 revenue to $2.1 billion with expected non-GAAP gross margin and operating margin around 63% and 46%, respectively. Management remains bullish on AI, cloud, and enterprise tailwinds, though looming tariff risks could weigh in the back half of the year. Still, Arista reaffirmed its full-year gross margin range of 60% to 62%.
Meanwhile, analysts predict EPS to be around $2.30 for fiscal 2025, up 11.7% year-over-year, before surging by another 15.2% annually to $2.65 in fiscal 2026.
BNP Paribas’ analyst, Karl Ackerman, downgraded ANET stock from “Outperform” to “Neutral” due to rising competitive threats, particularly from Nvidia. The analyst noted that the AI networking landscape is rapidly transitioning from InfiniBand to Ethernet, with Nvidia and other emerging players poised to lead this market shift.
He also noted that Nvidia’s anticipated launch of Quantum-X switches and rack-scale GPU systems, as early as the second half of 2025, could significantly compress Arista’s near-term growth prospects. As a result of these pressures, Ackerman revised his projection for Arista’s AI-related sales in 2027, lowering it from $3.4 billion to $2.5 billion.
Arista stock has a consensus “Moderate Buy” rating overall, as analysts remain cautiously optimistic. Out of 22 analysts covering the stock, 13 recommend a “Strong Buy,” two give a “Moderate Buy,” and seven analysts stay cautious with a “Hold” rating.
The average analyst price target for ANET is $110.95, indicating potential upside of 15%, while the Street-high target price of $130 suggests that the stock could rally as much as 35%.
On the date of publication, Sristi Suman Jayaswal did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. This article was originally published on Barchart.com