Arista’s Stock Hit As Analysts Cut Targets Over Tariff Uncertainty Despite Strong AI Demand – Arista Networks (NYSE:ANET)

Arista Networks ANET stock traded lower on Wednesday after Wall Street analysts cut their respective price targets.

Goldman Sachs analyst Michael Ng maintained a Buy rating on Arista Networks with a price target of $115 ($130 prior).

Arista Networks’ first-quarter 2025 EPS of $0.65 beat Ng and FactSet consensus of $0.62 and $0.59 with revenue of $2.00 billion beating consensus of $1.97 billion and guidance of $1.93 billion-$1.97 billion.

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The EPS beat was also driven by strength in gross margins (64.1% versus Ng and consensus of 63.0% and 63.2%), which were driven by higher non-cloud revenue.

Adjusted gross profit of $1.285 billion was slightly above Ng and consensus of $1.277 billion and $1.243 billion. Gross margins of 64.1% beat Ng and consensus of 63.0% and 63.2%. Adjusted EBIT of $957 million beat Ng and consensus $935 million and $872 million with margins of 47.8% above Ng and consensus of 46.1%and 44.3%.

First, Arista Networks highlighted momentum in AI demand and reiterated its expectations to generate at least $750 million in back-end AI switching revenue in 2025 across its four major AI cluster projects, with 75% already in production; the company expects to see a strong pull through of front-end AI switching (~1:1) but acknowledged the difficulty in identifying what products are deployed in the front end.  

Second, Arista Networks sized a potential 1.0%-1.5% gross tariff impact before mitigation efforts, such as supply chain optimization, absorption, and price increases.

Arista Networks’ tariff exposure is primarily related to the potential for reciprocal tariffs in Malaysia/Vietnam to resume after July 9; most production volume in Mexico is USMCA compliant.

Third, despite the in-quarter beat and positive momentum with Cloud Titans, Arista Networks did not raise (but reiterated) its full-year outlook for revenue, gross margins, or EBIT margins.

Arista Networks characterized its decision not to raise its full-year outlook as conservative, given the wide range of outcomes related to the tariff environment. It expects to update quarter by quarter.

Arista Networks guided second-quarter 2025, including revenue of ~$2.1 billion (versus consensus of $2.03 billion), adjusted gross margins of ~63% (versus consensus of ~62.4%), and adjusted EBIT margins of ~46% (versus consensus of ~44.4%).

Arista Networks reiterated its full-year 2025 guidance, including revenue growth of 17%, adjusted gross margins of 60%-62%, and adjusted EBIT margins of 43%-44%. Despite outperformance in the first quarter and the outlook for continued momentum in the second quarter, Arista Networks left its fiscal guidance unchanged to reflect uncertainty in potential tariff scenarios (1%-1.5% gross tariff impact without mitigation).   

Price Action: ANET stock is down 6.40% at $94.98 at last check Wednesday.

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