On Thursday, Rosenblatt maintained a Sell rating on Arista Networks (NYSE:ANET) with a stock price target of $220.00. The firm's stance is influenced by the growing presence of Nvidia (NASDAQ:NVDA) in the Ethernet market, which they believe could pose a significant competitive threat to Arista Networks.
Arista Networks, during their first quarter earnings call of 2024, did not acknowledge Nvidia as a direct competitor in the Ethernet space. Still, statements made by Nvidia in their first quarter earnings call of 2025 indicate their intention to be a substantial player in Ethernet networking, particularly with their Spectrum X product's success.
Nvidia's Spectrum X Ethernet Networking, which began shipping in the first quarter of 2025, is designed for artificial intelligence (AI) applications and is expected to become a multibillion-dollar product line within a year. This development comes after Nvidia's acquisition of Mellanox (NASDAQ:MLNX) in 2019, which expanded their capabilities in Ethernet switch chips, competing with Broadcom (NASDAQ:AVGO), Marvell (NASDAQ:MRVL), and Cisco (NASDAQ:CSCO).
The report suggests that Nvidia's approach to Ethernet is fundamentally different from traditional network-centric companies like Arista Networks and Cisco. Nvidia focuses on an AI compute fabric-centered approach, providing a performance edge in AI processing. This is in contrast to Arista's claim of a 5% to 10% performance advantage over Infiniband in AI clusters.
Further, Nvidia indirectly challenged Arista's claims about the performance of their Ethernet clusters, such as those used by Meta (NASDAQ:META). Nvidia revealed that Meta's most advanced AI models are trained on Nvidia's Infiniband clusters, not on Ethernet clusters involving Arista's technology.
The analyst from Rosenblatt concludes that while Arista Networks might not yet see Nvidia as a competitor, Nvidia's rapid growth in the AI market could soon make it a formidable rival in Ethernet as well. Consequently, Arista Networks is advised to trade at a historical multiple rather than an AI multiple, reaffirming the Sell rating with a $220 price target on their shares.
InvestingPro Insights
As Arista Networks (NYSE:ANET) navigates the competitive landscape shaped by the likes of Nvidia (NASDAQ:NVDA), investors are closely monitoring the company's financial health and market performance. According to InvestingPro data, Arista Networks boasts a robust market capitalization of $95.58 billion, reflecting its significant presence in the industry.
Despite Rosenblatt's cautious stance, the company's P/E ratio stands at 41.11, indicating a market valuation that factors in its earnings potential. Moreover, Arista's revenue growth over the last twelve months, as of Q1 2024, has been impressive at 25.22%, showcasing its ability to expand its top-line amidst competitive pressures.
An InvestingPro Tip worth mentioning is that Arista Networks holds more cash than debt on its balance sheet, which provides financial stability and flexibility for future growth and investments. With 24 analysts revising their earnings upwards for the upcoming period, there's a positive sentiment surrounding the company's near-term prospects. These revisions suggest that Arista may be well-positioned to navigate the competitive threats posed by Nvidia's entry into the Ethernet market.
For investors seeking more in-depth analysis and additional InvestingPro Tips on Arista Networks, they can explore further on Investing.com. There are currently 17 more tips available, which can provide valuable insights into Arista's financial performance and market position. To access these insights and more, use coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription.
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