4. Arista Networks, Inc. (NYSE:ANET)
Number of Hedge Fund Holders: 53
Arista Networks, Inc. (NYSE:ANET) specializes in the design and sale of advanced network switches that enable software-defined networking in various environments, including large data centers, cloud computing, high-performance computing, and high-frequency trading. Arista Networks, Inc. (NYSE:ANET) is projecting first quarter revenue between $1.275 billion and $1.325 billion, surpassing the expected revenue of $1.21 billion. Additionally, they anticipate a non-GAAP gross margin of approximately 60% and an operating margin of around 40%.
On April 17, Evercore ISI analyst Amit Daryanani included Arista Networks, Inc. (NYSE:ANET) in the firm’s “Tactical Outperform” list. Daryanani believes that Arista will continue its trend of exceeding expectations and providing positive updates in the March quarter. The firm anticipates that Arista Networks, Inc. (NYSE:ANET) will surpass market expectations comfortably, attributing this success to favorable conditions in the cloud sector and improved gross margins. Evercore rated the stock as Outperform and maintained a price target of $180, considering it a top pick.
According to Insider Monkey’s fourth quarter database, 53 hedge funds is the biggest stakeholder of Arista Networks, Inc. (NYSE:ANET), compared to 42 funds in the prior quarter. Steve Cohen’s Point72 Asset Management is the largest stakeholder of the company, with 1.8 million shares worth $220 million.
Giverny Capital made the following comment about Arista Networks, Inc. (NYSE:ANET) in its Q1 2023 investor letter:
“Our holding Arista Networks, Inc. (NYSE:ANET) continues to generate extraordinary results, which the market recognizes. Arista rose 38% during the first quarter and became our largest holding. Arista makes switches, routers and operating software that power enormous data networks, such as for cloud computing. Microsoft’s Azure cloud business and Meta Platforms’ Facebook and Instagram networks are Arista’s two most important customers. Roughly speaking, Arista has tripled its revenue and profit over the past five years and seems poised to continue growing rapidly for the foreseeable future. Demand for hyperscale computing networks may accelerate as artificial intelligence (AI) chat applications grow. By some estimates, the computer power required to answer Al chat queries is roughly seven times more than for a Google or Bing search. I think the realization that data network capacity needs to be much larger to accommodate Al has driven recent enthusiasm for Arista.
In general, I think when a stock blows through my price target the right answer is to bask in the glory and maybe splurge on a latte rather than my usual morning coffee. Don’t get itchy about locking in a profit. In this case, Arista became our largest holding and roughly 8.5% of the portfolio, while also being one of the most expensive businesses we own on a price-to-earnings basis. Arista earned $4.27 in 2022 and I believe there is good reason to expect it to double EPS again, perhaps by 2026 or 2027. But as the stock traded into the $160s, that represents a PE of 20x estimated earnings in four years. While I believe strongly in Arista’s competitive position, I know that tech giants are facing budget constraints and a pause in their own intense pace of infrastructure growth would not surprise anyone….” (Click here to read the full text)
