Arista Networks Is Poised To Benefit From Cloud Data Growth: Goldman Sachs Analyst

Shares of Arista Networks Inc ANET climbed a notable 1.52% during Tuesday’s premarket session after Goldman Sachs initiated coverage of U.S.

Communications Technology stocks, including Arista, with a "Buy" rating and a $170 price target.

Shares are currently trading around the $144 level.

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The Analyst: Michael Ng notes that Arista is the leading branded provider of switches to U.S. hyper scalers, making it well-positioned to benefit from the growth of cloud data and digital transformation in the industry.

Ng said that the networking equipment industry is projected to grow at an 11% CAGR from over the next three years, with the top five cloud providers in the U.S. making up the largest component of spending and growing at nearly twice the rate.

With the most revenue exposure to cloud spending among its coverage universe, Goldman said Arista is leveraged to grow significantly. It has 46% of its 2022 revenue from its Cloud Titans segment, and 22% from tier 2 cloud and service providers.

The analyst said Arista’s leadership in cloud data center switching is underpinned by a best-in-class platform — it has taken share in cloud networking through its highly programmable and flexible portfolio of switches, with over 250 possible data center combinations across port speeds, configurations, line cards, and merchant silicon types.

Goldman said Arista’s technology is differentiated from competitors in two key ways: The first being that its hardware runs the proprietary, programmable networking operating system “EOS,” which is a strategic advantage because it allows for easier automation, network visibility, and implementation. The second being that Arista uses the latest merchant silicon architectures, allowing it to be faster to market with new solutions.

Ng acknowledged that although cloud is the fastest-growing customer vertical in the overall networking equipment market, cloud capex budgets may be volatile. However, Goldman credits Arista’s execution track record and diversifying platform for partially offsetting concerns around cloud volatility.

Price action: Shares of Arista Networks climbed 1.52% to $144.75, according to data from Benzinga Pro.

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