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Nvidia (NASDAQ: NVDA) and Advanced Micro Devices (NASDAQ: AMD) have been some of the top-performingartificial intelligence (AI) stocks due to their chips, but the next winner may be in networking. Data centers require a significant amount of networking cables, and that can position Arista Networks (NYSE: ANET) to outperform both chipmakers during the next year. Here’s what makes the stock worth watching.
Missed AI’s “Act 1”? Act 2 Could Be 14x Bigger.Most investors think they missed the AI boat because they didn’t buy Nvidia in 2005. But according to our analysts, we’re only at the end of “Act 1″—the R&D phase. “Act 2” is the global rollout.Continue »
The business model
Arista Networks specializes in Ethernet switches, which transport data in, out, and between server racks. Those racks contain the AI chips that process intense workloads and enable AI products and services like ChatGPT. All of Arista’s switches run on its proprietary software.
The neat thing about the software is that it lets Arista’s Ethernet switches easily talk to each other and move data more seamlessly across racks and the data center as a whole. Engineers can make changes to thousands of Arista switches simultaneously instead of making changes to individual switches, which was a nightmare in the early 2000s.
Arista sells more switches when customers need to upgrade their data centers to handle more intense workloads. Old ones need to be replaced. Sales also go up when tech giants need to expand their data centers. More chips require more racks, and more racks translate into additional Ethernet switch sales.
It’s a huge pain for any data center to switch from Arista to any competitor. That would mean getting rid of all Arista switches and the critical software that links them all together.
Arista’s customers have deep pockets
Arista leans heavily on a small number of customers, with Microsoft (NASDAQ: MSFT) accounting for more than one-quarter of the company’s 2025 revenue. Although that type of concentration concerns some investors, Arista’s high retention rate and good relationship with hyperscalers are important to keep in mind.
With that issue addressed, it’s good to look closer at the customer profile. Microsoft is one of the cloud providers that works with Arista Networks. Amazon (NASDAQ: AMZN), Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL), and Meta Platforms (NASDAQ: META) are also customers, and all four of these companies pull in billions of dollars in quarterly profit.
Furthermore, all of these customers have committed to spending more money on artificial intelligence. As their efforts scale, they will need to bolster their AI infrastructure, and that includes buying more of Arista’s products.
