Until recently, many people may have never heard of Arista Networks (NYSE:ANET). Now, it's one of the hottest stocks on the market. The networking company has had great success in the business of routers, network switches and similar types of hardware equipment, and Wall Street is taking notice. The stock has beaten S&P 500 Index Things have been going well over the last 12 months and the story seems ready to continue.
There are a lot of tech stocks on the market, and many of them have seen huge gains in the short term. What I love about Arista is that networking and cloud computing are an integral part of modern technology. This is an industry that isn't going away.
Arista Networks develops networks for large enterprises through the use of cloud computing, routers, data centers and other digital resources. Networks are the backbone of many companies' infrastructure, and the growing popularity of cloud computing bodes well for Arista's future.
Arista, in particular, has the advantage of being an extensible operating system. As the company notes, it is "the core of Arista's cloud networking solutions for next-generation data centers and cloud networks." The company has a significant presence in the cloud space and continues to innovate to stay ahead of the curve.
The company's success is reflected in its collaboration with: meta platform. Meta is using Arista's distributed Etherlink switches for AI clusters, marking a continuation of a collaboration that began in 2018. This is just one example of the company's merit and usefulness to larger companies. All told, Arista currently has more than 10,000 cloud customers worldwide.
The stock returned nearly 100% last year, compared with the S&P 500's return of about 27%. More broadly, Arista is up 817% over the past five years and is perfectly positioned in the industry.
Arista Networks has had three consecutive years of strong performance, with sequential revenue growth of 27%, 48.6%, and 33.7% in 2021, 2022, and 2023, respectively. Correspondingly, earnings also have a significant growth rate. In fiscal year 2021, diluted earnings per share will increase by 31.94%, by 60.86% in 2022, and by 54.01% in 2023. Revenue in the first three quarters of 2024 increased by 17.43%, and diluted earnings per share increased by 37.6%, reaching $6.41 per share.
What I really like about Arista is that it's a stock that can be viewed from a net profit perspective. Many technology stocks trade at high price-to-earnings ratios or are not profitable at all. But Arista Networks has grown to the point where it can generate meaningful earnings for shareholders. The company's net profit in the first nine months of this year was $2.05 billion. Compared with the first nine months of last year, the increase was approximately 39%.
I don’t think the party is over yet. Networking is not going out of style in the business world, and the field is constantly evolving. Routers, switches and other types of hardware are all under Arista's control, and cloud-based networking is an ever-expanding business. Arista appears poised to continue benefiting from this.
Fourth-quarter guidance expects revenue in the range of $1.85 billion to $1.9 billion and non-GAAP gross margin of 63% to 64%. On the low end, this would bring Arista Networks' full-year revenue to $6.92 billion, a 36.49% increase from its 2023 performance of $5.07 billion.
Analysts expect full-year earnings of $1.87 per share, which would give the stock a forward price-to-earnings (P/E) ratio of about 64 times earnings. Given the growth shown here and the fact that the company's earnings are unexpectedly trending higher, I think this is a fair valuation when you consider some of the valuations other tech stocks are getting. As Danny Vena points out, the stock split announced by the company is further evidence of success, as the company's stock price has already risen so high in the last year.
All things considered, I think Arista Networks is a stock worth buying in 2025.
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Randi Zuckerberg is the former director of market development and spokesperson for Facebook, the sister of Meta Platforms CEO Mark Zuckerberg, and a board member of The Motley Fool. David Butler has no position in any of the stocks mentioned. The Motley Fool has positions and recommendations at Arista Networks and Meta Platforms. The Motley Fool has a disclosure policy.
Looking for stocks to soar in 2025? Look no further than Arista Networks. Originally posted by The Motley Fool