Arista Networks’ Stock (NASDAQ: ANET) Gains Bullish New Coverage, Continues To Lag Market

Arista Networks' stock (NASDAQ: ANET) finds itself in the unusual position of trading down 2.47%, as the Nasdaq 100 index is rallying pre-market trading, buoyed by blockbuster earnings from sector bellwethers like Nvidia.

Arista’s own shares are lagging, reflecting a complex interplay of strong underlying demand, margin pressures, and macroeconomic headwinds that have left investors weighing the company’s long-term promise against near-term uncertainties. Year-to-date, ANET has also underperformed, with a 17% decline a sharp about turn in sentiment that had been so bullish in previous years.

The company's own first quarter of 2025 showcased the company’s ongoing strength. Revenue soared to $2.005 billion, up 27.6% year-over-year, while adjusted earnings per share came in at 64 cents, both comfortably above Wall Street estimates. Net income climbed to $813.8 million, fueled by robust demand from hyperscale customers such as Meta and Microsoft, who continue to ramp up investments in AI and cloud infrastructure.

However, the positive momentum was quickly tempered by management’s guidance for the next quarter. Arista warned that both gross and operating margins are expected to decline sequentially, projecting a gross margin of 63% and operating margin of 46% for Q2, down from 64.1% and 47.8% in Q1.

This margin compression, attributed to supply chain costs and tariff uncertainties, triggered a swift negative reaction, with shares falling around 4% in after-hours trading post-earnings.

The specter of trade policy shifts and potential supply chain disruptions has reintroduced volatility into the networking and semiconductor sectors, even as demand fundamentals remain strong. This echoes recent developments at Nvidia, which, despite posting record quarterly revenue of $44.1 billion (up 69% year-over-year) and beating analyst expectations, also flagged an $8 billion revenue hit from new chip restrictions related to China.

Despite the recent volatility, analysts remain broadly constructive on the stock. The consensus among 39 analysts is a “Buy” rating, with an average price target of $106, representing a potential upside of ~15% from current levels. Just this morning, analysts at Redburn Atlantic also initiated coverage of ANET, with a $112 price target, and buy rating.

The company’s strong growth fundamentals and leadership in AI-driven networking position it well for the long term, but near-term challenges of margin pressures, tariff uncertainty, and market volatility, are keeping the stock in check. Some profit taking could well have been expected after years of stellar growth, yet the rising tide floating all boats is not ringing true here this morning.