Last year this time, Arista Networks (NYSE: ANET) guided a year-on-year (YOU) growth rate of 10-12% for its FY 2024 revenue. With increased visibility along the year, management raised their guidance.
Two days ago, Arista announced a remarkable 19.5% YOY growth for its FY 2024 revenue to US$7 billion, significantly exceeding the previous year’s guidance! This impressive performance was further underscored by earnings per share (EPS) growth exceeding 30%, reaching a record $2.27.
Microsoft (NASDAQ: MSFT) and Meta Platforms (NASDAQ: META) continue to be major customers for Arista, contributing approximately 20% and 15% of revenue, respectively.
Although their percentage contribution has decreased from over 40% in 2023, revenue from both companies is still growing, fuelled by their increasing AI investments.
This growth, alongside successful diversification, has propelled Arista to overtake Cisco Systems (NASDAQ: CSCO) in market share in 2024.
Similar to Shopify Inc (NASDAQ: SHOP), which has successfully expanded its market share, Arista Networks is also broadening its total addressable market (TAM).
Two years ago, the estimated TAM in 2027 was $51 billion. Now, fueled by the AI boom and the resulting demand for high-performance networking, that projection has been revised upward to $70 billion in 2028.
This significant TAM expansion reinforces CEO Jayshree Ullal’s optimistic outlook.
While she is thankful for the opportunity to connect to Nvidia (NASDAQ: NVDA), which dominates the GPUs market now, she believes the GPU market will diversify.
“Arista will be GPU agnostic,” she stated, explaining that their networking solutions are compatible with GPUs from any vendor, giving them a broad market reach.
Trading at around US$100 now, Arista is valued at a Price-to-Earning (PE) ratio of approximately 44x now. At first glance, this may appear expensive. However, if Arista could just achieve a 20% average annual EPS growth rate over the next three to five years, then the current price is justifiable.
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