Wall Street has a new favorite AI pick
Analysts on Wall Street think Arista Networks is the next premier artificial intelligence play. On Monday, the company reported a blowout third quarter that surpassed Wall Street expectations on both the top and bottom lines. Arista reported earnings of $1.83 per share, excluding items, on $1.51 billion in revenue. Analysts polled by FactSet forecast $1.58 per share in earnings and $1.48 billion in revenue. Arista also issued higher-than-expected forward guidance, calling for fourth-quarter revenue in the range of $1.5 billion to $1.55 billion. Analysts surveyed by FactSet forecast $1.47 billion. Shares popped nearly 12% Tuesday, buoyed by the results. Arista focuses on low-latency networks between clients and the cloud for large-scale data centers, exposing the company to growing investor interest in AI. The stock is up 63% in 2023. ANET YTD mountain Arista Networks stock. Moving forward, analysts think the company can be the top player in the Ethernet application of AI. Barclays, Citi, Morgan Stanley and Wells Fargo all lauded the report and highlighted the company's potential AI catalyst for growth heading into 2024. Morgan Stanley's Meta Marshall thinks the company will see more growth on the heels of the adoption of 800G Ethernet transceivers for data centers. The analyst upgraded Arista stock to overweight in a Tuesday note and increased her price target to $220 from $185, reflecting more than 25% upside from Monday's $175.72 close. "We have refreshed our analysis from the beginning of the year, with a slightly largely benefit to Arista given the share gains they have shown at 400G this year (and slightly larger total opportunity given growth in Infiniband)," Marshall said. "While there remains risk heading into the 800G cycle, we continue to think Arista is well positioned." Elsewhere, Citi analyst Atif Malik was also bullish on Arista following third-quarter results, and highlighted demand for 400G transceivers, as well as AI and cloud opportunities. The analyst reiterated Arista as a top AI pick into 2024. "We like Arista's positioning in the DC [direct current] switching market within the fastest growing segments of the market cloud/400G and LT exposure to generative AI megatrend," Malik said. "We believe 400G cloud spend could recover into next year as hyperscaler spending on traditional data center infrastructure rebounds and a top customer's capex recovers," the analyst said. "Arista is also likely to benefit from any early AI related opportunities." — CNBC's Michael Bloom contributed reporting.