We recently published a list of 10 Tech Stocks with High Upside Potential. In this article, we are going to take a look at where Arista Networks Inc (NYSE:ANET) stands against other tech stocks with high upside potential.
As per Forrester Research, Inc., despite persistent inflation, the US real GDP is expected to increase 2.7% in 2025 and the US tech spending is projected to see growth of 6.1% to touch a staggering $2.7 trillion. The software spending in the US is expected to increase by 10.7% in 2025. With the escalation in cybersecurity risks, companies continue to leverage cloud and GenAI technologies to fuel future growth and innovation.
AI to Drive Growth in Tech Sector in 2025
The largest US stocks, also referred to as the Magnificent 7, have seen a strong run over the previous 2 years, mainly due to the buildout of AI infrastructure, says Goldman Sachs. Sung Cho, co-head of US Fundamental Equity in Goldman Sachs Asset Management. Cho believes this buildout can significantly benefit data and security companies, and software companies successfully integrating AI in their existing product set. As the Fed continues to cut rates, the smaller tech companies – which saw contraction in their multiples because of higher rates – might see a favourable macro backdrop.
READ ALSO: 7 Best Stocks to Buy For Long-Term and 8 Cheap Jim Cramer Stocks to Invest In.
Robust AI Investments are On the Horizon
UBS has highlighted how AI has and will continue to drive the growth of the broader technology sector. As per the firm, since the rollout of ChatGPT in November 2022, the total market capitalization of companies listed on the US technology exchange NASDAQ increased to ~US$13.5 trillion. Notably, around two-thirds of this value increase has been directly caused by the AI sector. Moving forward, the decisive factor is expected to be the extent to which significant investments in AI-based infrastructure can be translated into profitable business models.
While highlighting the consensus estimates, UBS stated that the 4 major US technology corporations are projected to invest ~US$280 billion in AI this year. Given the increased usage of this key technology across industries, value creation processes are expected to be optimized. This can lead to significant productivity gains. One such area is the market for robotics and automation, which is expected to reach a sales volume of ~US$350 billion in 2025, says UBS analysts. Notably, humanoid robotics will be the key area of particular interest because of the innovations.
Our Methodology
To list the 10 Tech Stocks with High Upside Potential, we used a screener and shortlisted the stocks catering to the broader technology sector. Next, we filtered out the stocks having an average upside potential of at least ~30%, as of February 28. Finally, the stocks were arranged in ascending order of their average upside potential. We also mentioned the hedge fund sentiments around each stock, as of Q4 2024.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 373.4% since May 2014, beating its benchmark by 218 percentage points (see more details here).
A technician in a server room managing a large-scale network of computers.
Arista Networks Inc (NYSE:ANET)
Average Upside Potential: ~34.3%
Number of Hedge Fund Holders: 78
Arista Networks Inc (NYSE:ANET) is a software and hardware provider for the networking solutions sector. Barclays upped the company’s price target to $126 from $125, keeping an “Overweight” rating on the shares. As per the analyst, Arista Networks Inc (NYSE:ANET) managed to surpass the Q4 estimates and its Q1 guidance remained above the consensus. For Q1 2025, it expects revenue of between $1.93 billion – $1.97 billion and non-GAAP gross margin of ~63%. Notably, the AI backend target of $750 million was maintained but Barclays projects upside and sees 2026 revenues doubling off that base.
Elsewhere, Morningstar believes that Arista Networks Inc (NYSE:ANET)’s strong growth over 2024 benefitted mainly from generative artificial intelligence investment, and the firm expects that AI will continue to act as a primary growth driver. The company’s high-speed switches and software-led approach remain differentiated from other networking competitors and difficult to replicate. Therefore, the strength in high-speed switching is expected to generate economic profits for Arista Networks Inc (NYSE:ANET) over the upcoming 20 years, says Morningstar. Overall, with hyperscalers and enterprises scaling their AI and cloud infrastructure, the company remains well-placed for healthy growth.
Madison Investments, an investment advisor, released its Q4 2024 investor letter. Here is what the fund said:
“The top five contributors for the quarter were Liberty Formula One, Arista Networks Inc (NYSE:ANET), Copart, Brookfield Asset Management, and Lithia Motors. Arista Networks posted another quarter of better-than-expected revenue and earnings growth. More importantly, the outlook remains robust, with promising results from its AI trials with customers on top of anticipated solid growth in the core business.”
Overall, ANET ranks 8th on our list of tech stocks with high upside potential. While we acknowledge the potential of ANET as an investment, our conviction lies in the belief that some deeply undervalued AI stocks hold greater promise for delivering higher returns, and doing so within a shorter time frame. If you are looking for a deeply undervalued AI stock that is more promising than ANET but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
