Arista Networks
ANET · NYSECommunications · Data Center Networking Hardware
Since the Report + 0.7%
Close on Report DayAug 4
$192.32▲ 11.8%Report-Day Move
- Market Cap(Today)
- ≈ $244 B
- 1Y Return(At Report)
- + 63%
- P/E($3.46 · Trailing 12M)
- 56.0
- PEG(next-year consensus)
- 2.31
- Net Margin(Trailing 12M)
- 38.4%
Arista delivered the first $3 billion quarter in its 22-year history: revenue rose 37.7% to $3.04 billion, adjusted earnings of $1.02 came in about 13% above expectation, and full-year 2026 guidance was raised for the third time this year, to $12.6 billion. The stock popped roughly 12% after hours to an all-time high, then handed back most of that gain and closed the next session up only 3.6%, because the shares had already climbed 63% over the prior year. What matters next is where gross margin goes from 63.4% and how few cloud customers the growth still rests on.
Revenue (Q2)
$3.04B
▲ 37.7% YoY
Adjusted EPS
$1.02
13% Above Expectations
Adjusted Gross Margin
63.4%
Down 2.2 Pts YoY
Adjusted Operating Margin
49.9%
Up 1.1 Pts YoY
FY2026 Revenue Guidance
~$12.6B
3rd Raise This Year
Deferred Revenue
$6.9B
$6.2B Prior Quarter
Quarterly Revenue ($ Billion)
2.21
2.31
2.49
2.71
3.04
Guidance ~$3.3B
- Q2 2025
- Q3 2025
- Q4 2025
- Q1 2026
- Q2 2026
- Q3 2026
- YoY Growth
- 37.7%Q2 2025: $2.21B
- International Revenue Share
- 23%$697.8M
- Deferred Revenue
- $6.9B$6.2B Prior Quarter
Q3 2026 Company Guidance
- Revenue3.3 billion
Midpoint $3.3B · Market Expectation $2.95BAbove Expectation ▲
- Adjusted EPS1.06 – 1.08 $
Midpoint $1.07 · Market Expectation $0.92Entire Range Above Expectation ▲
- Adjusted Gross Margin63%
Q2 actual 63.4% · 65.6% a year agoMargin Pressure Persists ▼
- Adjusted Operating Margin48% – 49%
Q2 actual 49.9%Slight Step Down ▼
- FY2026 Revenue12.6 billion
May guide $11.5B · 3rd raise this yearRevised Up ▲
The blue band is the company's low–high range; its length shows how much room the company left itself. The black triangle and the line beneath it mark where the market expected, and the notch in the band is the range's midpoint. The triangle appears only where a market expectation is known. Axis is ±16% around the midpoint.
- FY2026 Revenue Target
- ~$12.6B3rd Raise This Year
- Purchase Commitments
- $9.7B$8.9B Prior Quarter
- Cash & Marketable Securities
- $13.3BDebt-Free Balance Sheet
“As we deliver our first $3 billion quarter in Q2 2026, it is clear that our Arista 2.0 platform strategy is compelling. Customers see networking as the central nervous system for infrastructure from the client to campus to data and AI centers.”
- Arista 2.0 platform strategy
- Etherlink AI networking momentum
- Supply constraints through 2028
Summary
Reporting after the close on August 4, Arista Networks posted second-quarter 2026 revenue of $3.04 billion, up 37.7% from $2.21 billion a year earlier and the first quarter above three billion dollars in the company's 22-year history. Adjusted earnings came in at $1.02 per share against a Market Expectation of roughly $0.90, about 13% above the bar. Adjusted operating margin widened to 49.9%, 1.1 points better than a year ago, but adjusted gross margin slipped from 65.6% to 63.4%. For the third quarter the company guided to about $3.3 billion in revenue and $1.06 to $1.08 per share, both comfortably above the Market Expectation. The bigger news was the annual outlook: full-year 2026 revenue was raised to roughly $12.6 billion, $1.1 billion above the May guide and the third upward revision this year.
The first reaction was euphoric. The stock jumped about 12% after hours to an all-time high and opened the August 5 session above $210, a gap of more than 10% from the prior close. Then sellers arrived. It closed that day at $197.31, up just 3.6%, and fell another 2.5% on August 6 to $192.32 — almost exactly back to the $190.51 pre-earnings close. The give-back had nothing to do with the quarter being weak and everything to do with how much the price already carried. The shares had gained 63% over the previous year and entered earnings week on three consecutive up days. Investors looked past the size of the numbers and focused on where gross margin is heading and how few customers the growth rests on.
The quarter itself is strong. Revenue and earnings beat, guidance has now been raised three times in a row, and deferred revenue climbed from $6.2 billion to $6.9 billion, a sign that demand is still running ahead of shipments. Two genuine reservations sit alongside that. Gross margin narrowed by 2.2 points year over year and management expects rising memory and silicon costs to keep the pressure on. And a large share of revenue still depends on a handful of cloud customers. Even so, the scale of the growth, the expanding operating margin and the size of the guidance raise outweigh those caveats. We rate the quarter <strong>strong</strong>; whether this is the right price for the stock is a separate question, and one that shows up on the valuation side.
Full Review
ClaudeThe first $3 billion quarter came from AI fabrics.
Revenue of $3.04 billion was up 37.7% from $2.21 billion a year earlier and 12.1% from the previous quarter. The engine is the Ethernet fabric behind AI clusters: the company's Etherlink family has now passed 100 cumulative customers. Management is targeting at least $3.5 billion of AI fabrics revenue in 2026, with a separate campus goal of at least $1.25 billion. On the call, Jayshree Ullal framed those numbers as a floor rather than a ceiling: "The question is not whether it will go up. The question is what is that number?" International revenue reached $697.8 million, or 23% of the total, showing the growth is not coming from a few U.S. data centers alone. Deferred revenue rose to $6.9 billion; a backlog growing faster than revenue usually means demand is ahead of supply.
The real story is the guidance, not the quarter.
Third-quarter revenue guidance of roughly $3.3 billion sits about 12% above the Market Expectation of $2.95 billion. The midpoint of the earnings guide, $1.07 per share, compares with an expected $0.92. The full-year outlook was lifted to $12.6 billion, or 40% growth — $1.1 billion above the May guide and the third increase this year. A company raising guidance three times running is telling you how conservative its January demand picture turned out to be. Management was equally clear about the limits of its visibility: planning rests on roughly two quarters of forward view and on what parts it can actually get. In other words, the raise reflects supply availability as much as demand.
Gross margin is the one concrete soft spot.
Adjusted gross margin came in at 63.4%, above the prior quarter's 62.4% but 2.2 points below the 65.6% of a year ago. The company noted that the quarter also benefited by 20 to 30 basis points from tariff refunds, so the underlying margin is slightly weaker than it looks. Guidance calls for about 63% in the third quarter and a 62% to 64% range for the year. Two forces are at work: customer mix, since sales to large cloud buyers carry lower margins than enterprise sales, and rising memory and silicon costs. The full picture is not negative, though — operating margin still expanded to 49.9%, because revenue is growing far faster than the expense lines. Arista is losing margin on the production side and winning it back on scale.
Leaning on a narrow customer base is a structural fragility.
Customer concentration is Arista's best-known weak point. The company has for years disclosed Microsoft and Meta as customers each accounting for more than 10% of revenue, and Bank of America analysts estimate Microsoft alone made up close to a quarter of 2025 revenue. On this call management said it expects both to stay above the 10% threshold and that one or two additional customers could cross it. New large accounts dilute the concentration over time, but they do not change today's picture: a delay in the capital spending plans of a few companies could dent an Arista quarter on its own. A second factor compounds it — acceptance clauses in some large contracts tie revenue recognition to a customer sign-off, which makes quarterly revenue lumpy and is part of why deferred revenue swelled to $6.9 billion. It is a good illustration of why diversification cannot be solved inside a single stock.
Supply chain and regulation stay on the table through 2028.
Ullal was blunt about supply: "The industry is going to have a two-year problem. I don't think we get out of it as an industry till 2028." That describes a period where shipping, not booking, is the bottleneck. The company is positioning accordingly: inventory rose to $2.5 billion and purchase commitments to $9.7 billion. A regulatory headline landed the same week. According to a draft reported by Reuters on August 4, the FCC plans to stop approving new Chinese-made optical transceiver models; the measure is expected to target the 800G-to-1.6T transition rather than already-installed equipment. That transition is exactly where Arista's 2027 product cycle sits. Our piece on the FCC ban on Chinese optical transceivers covers the detail. Arista does not make transceivers, but their price and availability feed straight into its delivery schedule and cost base.
The price had already absorbed the good news.
The stock rose roughly 12% after hours to a record, opened August 5 at $210.19 and touched $214.89 intraday — then closed at $197.31. The next day it slipped another 2.5% to $192.32, against a pre-earnings close of $190.51. A near-perfect quarter and one of the largest guidance raises in the company's history left almost no mark on the price after two days. The reason is straightforward: the shares were up 63% over a year, carried a market capitalization above $240 billion and came into earnings week on a three-day winning run. Analysts did move: Needham lifted its target from $200 to $260 and Bank of America from $200 to $240, leaving an average 12-month target near $236, about 23% above the current price. But the lesson of those two days is that a good quarter no longer lifts a stock automatically — the bar can sit above the company's own guidance.
Strengths
6- The first $3 billion quarter in company history: revenue of $3.04 billion, up 37.7% year over year and roughly 7% above the Market Expectation.
- Full-year revenue guidance raised to $12.6 billion — $1.1 billion above the May guide and the third increase this year.
- Adjusted operating margin expanded to 49.9%, 1.1 points better than a year ago, as revenue outgrew the expense lines.
- Deferred revenue climbed from $6.2 billion to $6.9 billion; the backlog is growing faster than reported revenue.
- A fortress balance sheet: $2.29 billion in cash plus $11.05 billion in marketable securities, $13.3 billion of liquid assets with no debt.
- International revenue reached $697.8 million, or 23% of the total — growth is not confined to U.S. data centers.
Risks
6- Customer concentration is a structural risk: Microsoft and Meta each account for more than 10% of revenue, and Bank of America estimates Microsoft alone supplied close to a quarter of 2025 revenue. A slip in the spending calendar of a few cloud buyers could break a quarter on its own.
- Adjusted gross margin narrowed 2.2 points year over year to 63.4%, and even that included 20 to 30 basis points of help from tariff refunds. Management expects rising memory and silicon costs to keep the pressure on.
- Ullal says the industry's supply bottleneck runs through 2028; the company has responded by lifting inventory to $2.5 billion and purchase commitments to $9.7 billion — obligations that turn into a burden if demand cools.
- The FCC's draft measure to stop approving new Chinese-made optical transceiver models lands in the middle of the 800G-to-1.6T transition; Western alternatives lack the capacity to fill the gap and price increases are expected.
- The 1.6T product (7060X-E7) is still in trials at a single-digit number of large customers with volume production pushed to 2027, and management's visibility extends only about two quarters, tied to both demand and parts availability.
- The stock is up 63% over a year and carries a market capitalization above $240 billion; even a near-perfect quarter left no mark on the price after two sessions.
What to Watch
5- Early November 2026 — Q3 2026 results. Company guidance calls for about $3.3 billion in revenue, roughly 63% gross margin, a 48-49% operating margin and $1.06 to $1.08 per share. The bar is high: simply landing at $3.3 billion could read as a miss.
- End of 2026 — Beyond the $12.6 billion annual revenue goal, watch whether the sub-targets hold: at least $3.5 billion in AI fabrics and at least $1.25 billion in campus.
- During 2026 — Whether the FCC publishes its draft on Chinese-made optical transceivers. If it covers new models only, the impact shifts to the 2027 product cycle; a broader scope would hit the entire networking supply chain.
- Second half of 2026 — Trials of the 1.6T-capable 7060X-E7 platform beginning at a single-digit number of large customers. Their outcome sets 2027 production volumes.
- February 2027 — Q4 2026 results and, most likely, the first 2027 outlook. That will be the first official signal on how AI infrastructure spending trends next year.
Upcoming Earnings
To Understand This