If you’re searching for stocks to buy in 2025, you might want to put Arista Networks (NYSE: ANET) on your radar. This S&P 500 member recently pulled off a 4-for-1 stock split, and its journey since its 2014 IPO is nothing short of remarkable. The company has surged by an eye-popping 3,823% since its debut. So, is Arista still a good investment, or is it time to look elsewhere? Let’s break it down and explore why Wall Street remains bullish on Arista’s future.
What is Arista Networks?
Arista Networks is a leading player in the networking hardware industry, providing high-speed, low-latency network switches and routers designed to handle the growing demand for data transfer. Since its founding in 2008, Arista has carved out a niche by revolutionising data centre networking with high-performance switches, which are essential for connecting devices across the globe.
Arista’s products are built to deliver optimal network performance, especially for large-scale AI workloads, which makes them crucial in the current tech landscape. The company’s solutions have proven vital for industries needing fast and reliable data transfer, such as tech giants, data centres, and cloud providers.
Arista Networks: A 3,823% Growth Story Since Its IPO
Arista’s IPO in 2014 marked the beginning of an incredible journey. Since then, its stock has skyrocketed by 3,823%—a number that’s hard to ignore, even in a market that has seen significant growth.
In 2018, Arista Networks joined the S&P 500, which is a prestigious milestone for any company. To make it into the S&P 500, Arista had to meet stringent criteria: it had to be based in the U.S., have a market cap of at least $18 billion, be highly liquid, and be profitable. Arista exceeded these requirements with ease, and it’s clear that its strong financial performance has kept it in the spotlight ever since.
What Caused Arista’s Stock Split?
A 4-for-1 stock split is typically a result of impressive financial performance, and Arista’s stock split is no different. The company has seen consistent revenue growth, particularly with its AI-specific offerings, like the Etherlink AI platforms. These products are designed to meet the growing demand for AI networking solutions, which is one of the biggest trends driving the tech industry today.
By splitting the stock, Arista is making its shares more accessible to a wider range of investors. This is a common strategy for companies that have seen their stock prices rise significantly over time. Arista’s stock price, which was trading over $400 before the split, is now priced around $100 post-split, making it more affordable for investors to buy in.
The Role of Artificial Intelligence (AI) in Arista’s Growth
Arista’s pivot to support AI workloads is one of the key reasons why its growth is expected to continue. As AI applications like machine learning and deep learning become more prevalent, they require highly optimised and powerful networking solutions to transfer massive amounts of data between graphics processing units (GPUs).
Arista’s Distributed Etherlink 7700 AI platform, for example, is built to support up to 10,000 GPU clusters, which are used for training AI models. This is a game-changer in the AI field, as high-speed and low-latency networking is critical for efficient data processing.
As AI continues to expand, so too will the demand for Arista’s products. The company has positioned itself as an industry leader in AI networking, and this trend is only expected to accelerate as more companies invest in AI technologies.
Wall Street’s Bullish Stance on Arista Networks
Despite its premium valuation, Wall Street remains largely bullish on Arista’s future. As of December 2024, 77% of analysts have rated Arista as a buy or strong buy. While some analysts remain cautious due to its high valuation, others are more optimistic. For example, Barclays analyst Tim Long has a price target of $124 for Arista’s stock, which implies a 19% upside from its current price.
This positive outlook is based on Arista’s strong financial performance—for Q3, it reported a 20% year-over-year revenue increase and a 35% increase in earnings per share. The company’s AI-focused initiatives, market share gains, and strong growth trajectory have convinced analysts that Arista will continue to outperform the broader market in the coming years.
The Valuation Debate: Is Arista Expensive?
Arista Networks is currently trading at 51 times earnings, which might seem expensive when compared to other stocks in the market. However, it’s important to consider the company’s growth potential. The high price-to-earnings ratio (P/E) reflects investors’ confidence in its future, especially as AI networking continues to be a major growth area.
In fact, when we consider that Arista has outperformed the broader market by a factor of eight over the past five years (with a 779% return compared to the S&P 500’s 97% return), its current valuation may not seem so unreasonable. The company’s impressive growth trajectory makes it an appealing option for investors looking for high-growth stocks.
Should You Invest in Arista Networks Today?
If you’re looking to invest in Arista Networks as we head into 2025, there are several factors to consider:
- Strong growth potential: Arista is a leader in AI networking solutions, which positions it well for future growth.
- Positive Wall Street sentiment: The majority of analysts maintain a buy rating on the stock, with some projecting significant upside.
- Premium valuation: Arista’s stock is trading at a high P/E ratio, so investors need to weigh the company’s growth prospects against its price.
Arista Networks’ stock may be a buy for those who believe in the long-term potential of AI networking, but it’s important to remember that investing in high-growth stocks like Arista comes with risks. The stock’s premium valuation means that there is little room for error, and a slowdown in demand for AI technologies could impact its performance.
Conclusion: Why Arista Networks is Still a Buy for 2025
In summary, Arista Networks has been on an impressive growth trajectory since its IPO, and its recent stock split only adds to its appeal. With strong revenue growth, innovative AI-focused products, and bullish analyst opinions, Arista remains a compelling investment for 2025.
While its high valuation might raise some eyebrows, the company’s growth potential—especially in the AI networking space—could make it a winner for long-term investors. If you’re looking for a stock with substantial upside in the rapidly evolving tech landscape, Arista Networks is definitely worth considering.
Relevant links for further reading
Photo credit: AOL
