Arista Networks Q3 2026 Earnings Call Transcript

Arista Networks (NYSE:ANET) reported third-quarter financial results on Tuesday. The transcript from the company’s third-quarter earnings call has been provided below.

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Summary

Arista Networks reported a record $3.66 billion in Q3 revenue, marking a 58.5% annual growth, the largest in its history as a public company.

The company highlighted its Arista 2.0 strategy, focusing on AI, cloud, and data center solutions, and emphasized its leadership in AI networking and security innovations.

For 2026, Arista increased its annual revenue guidance to $13.3 billion, reflecting a 48% growth, with expectations for 2027 revenue growth between 38% and 40%, reaching approximately $18.5 billion.

Management provided a positive outlook on its AI-driven products, particularly the EtherLink portfolio and the autonomous virtual assistant, AVA, for enhanced network security.

Arista’s gross margin was reported at 64%, with an operating margin above 49%, while its cash and marketable securities totaled $14.4 billion.

The company sees strong demand in AI fabrics and campus networking, with AI expected to be a fast-growing segment, and anticipates significant product innovations in the coming years.

Management expressed confidence in supply chain execution and strategic partnerships to meet future demand, despite industry-wide constraints.

Full Transcript

OPERATOR

Welcome to the third quarter 2026 Arista Networks financial results earnings conference call. During the call, all participants will be in a listen-only mode. After the presentation, we will conduct a question-and-answer session. Instructions will be provided at that time. If you need to reach an operator at any time during the conference, please press the star key followed by zero. As a reminder, this conference is being recorded and will be available for replay from the Investor Relations section on the Arista website.

Following this call, Mr. Rudolph Araujo, Arista’s Head of Investor Advocacy, you may begin.

Rudolph Araujo (Head of Investor Advocacy)

Thank you, Regina. Good afternoon everyone and thank you for joining us. With me on today’s call are Jayshree Ullal, Arista Networks’ Chairperson and Chief Executive Officer, and Chantelle Breithaupt, Arista Networks’ Chief Financial Officer. This afternoon, Arista Networks issued a press release announcing its fiscal third quarter results for the period ending September 30, 2026. If you want a copy of this release, you can find it on our website.

During the course of this conference call, Arista Networks management will make forward-looking statements including those relating to our financial outlook for the fourth quarter of the 2026 fiscal year, longer-term business model and financial outlooks for 2027 and beyond, our total addressable market and strategy for accessing those market opportunities across AI, campus, data center and other segments, and inventory levels and management, lead times, purchase commitments, component supply and product innovation, which are subject to the risks and uncertainties that we discuss in detail in our documents filed with the SEC, specifically in our most recent Form 10-Q and Form 10-K, and which could cause actual results to differ materially from those anticipated by these statements.

These forward-looking statements apply as of today and you should not rely on them as representing our views in the future. We undertake no obligation to update these statements after this call. This analysis of our Q3 results and our guidance for Q4 2026 and FY 2027 is based on non-GAAP financial measures and excludes stock-based compensation expense, intangible asset amortization and other non-recurring items, as well as the income tax effect of these non-GAAP exclusions including the recognition of excess tax benefits associated with stock-based awards. A full reconciliation of our selected GAAP to non-GAAP historical results is provided in our earnings release.

A reconciliation of our FY27 non-GAAP guidance to the most directly comparable GAAP measures is not available without unreasonable effort. With that, I will turn the call over to Jayshree.

Jayshree Ullal (Chief Executive Officer and Chair)

Thank you and welcome everyone to our third quarter 2026 earnings call. Arista just delivered a standout quarter of 3.66 billion in revenue, which is translating to our annual growth of 58.5%. This marks our largest ever year-over-year revenue growth in the history of being a public company. Before we dive into the financial specifics, I would like to emphasize our rapid Arista 2.0 success, a strategy we embarked upon just three years ago. It has generated meaningful customer outcomes to become the central network nervous system for us. In the 2000 era, the industry had accepted a status quo plagued by fragile, overly complex, disparate and vulnerable operating systems. Arista pioneered the universal cloud network and the AI leaf-spine architecture based upon our rock-solid, high-quality foundation of our differentiated EOS.

That one network operating system with a publish-subscribe state and data-driven foundation has governed us with five agile security, automation, availability, analytics and AI principles. By extending our single EOS operating system from the data center all the way from the universal spine to many forms of edge leaf function, we deliver structural and secure network harmony. Our Arista 2.0 transformation from data centers to centers of data can be characterized as the age of network intelligence. Learning from vast repositories of streaming data, it has driven our strategy across locations, be it client to branch to campus to data to cloud and AI centers for our customers. Based on our network data lake architecture, we offer our customers automated and conversational troubleshooting agent companions devoid of manual hunting through text-heavy logs.

Our systems proactively begin identifying and isolating issues for networked workloads, workflows and workstreams. In 2026, the network-centric acceleration is well underway. Our customers have increasingly coalesced the back end and the front end of AI and data centers. Arista has long championed standards-based Ethernet. Customers have welcomed our open approach to modernizing cloud, campus, data centers, WAN centers and now AI centers with a lower total cost of ownership. Recently we were recognized with the leader status from Forrester for the highest strength of innovation and data center portfolio.

We were also recognized by Gartner, Magic Quadrant leadership for campus, wired and wireless and data center segments. As agentic AI models increase in parallelism, compute diversity and density, we have the choice of many more training and inference accelerators. The industry, we believe, is shifting from compute-centric vertical stack to a holistic network-centric approach. Arista is committed to unleashing and breaking down the barriers between compute and networking. Arista customers can now construct an open network platform capable of handling heterogeneous models and diverse accelerators at scale.

Our EtherLink portfolio of at least 25 switches for scale-up, scale-out and scale-across is optimally designed to improve XPU utilization, job completion time and token latency for these intense training and inference workloads. In October of 2026 at the Open Compute Project Conference, Arista showcased our rack scale-up designs partnering closely with several AI accelerators, infused with our Arista network diagnostics layer based on Ethernet for scale-up rack options. These include orthogonal designs, cable-intensive backplanes and heterogeneous cross-rack designs co-designed with many of our partners including ARM, Microsoft, Maya, AMD’s Helios, Qualcomm, Meta’s MTIA and many more.

Ahead we expect scale-up trials to begin in 2027, driving Ethernet to larger radix of 126 to 144 within a rack and across a thousand racks, with production expected for scale-up in 2028. We are witnessing the migration from highly centralized training compute to disaggregated and distributed inference, pre-fill and decode, demanding much more intelligent networking and collocation of compute, storage and KV cache resources rather than simply focusing on raw feeds and speeds and FLOPS of compute. A well-designed network is becoming a foundational cornerstone for optimal token efficiency. Arista’s decades of EOS engineering in both multiplanar and distributed model routing at scale, be it ARP, FIB tables, forwarding information base or access lists with rapid reconvergence, comes to the rescue.

Our EtherLink products are inherently designed to actively understand parameters at a deep level including latency and bandwidth profiles of multi-tenancy to intelligently steer workloads for optimal placement between local and remote domains. The need for visibility into ports, packet queues, flows, buffer utilization and port latency across the entire scale-out and scale-across fabric validates real AI system-level performance to avoid idling of precious compute cycles.

It assures immediate and network-wide insight to the root cause as well as rapid recovery of the AI system with smart system upgrades across millions of accelerators. When we initially began this transformational AI journey we spoke about four or five AI customers with approximately 50 to 100,000 NVIDIA GPUs and in fact we were largely staring at a proprietary network cycle such as InfiniBand. In 2026 we are in a super cycle of AI. Having already surpassed 100 EtherLink customers, by the end of 27 we are forecasting greater than 10 gigawatts of deployment across 10 or more different types of compute accelerators.

What a stark inflection in just three years. Central to this AI supercycle is also the expansion of Arista AVA, our autonomous virtual assist to support efficient AI in the enterprise. By providing that open programmable interface within EOS and utilizing the Model Context Protocol (MCP), AVA allows emerging AI agents to reason to interact with the network stack and perform advanced multi-domain event correlation across the entire enterprise. With the exponential rise of generated AI attacks and the ever-increasing cyber threats, securing the network is key and integral and our responsibility.

I would like to invite Ken Duda, our founder, President and CTO, to shed some light on this problem. Ken.

Kenneth Duda (President and CTO)

Thanks, Jayshree. It’s hard to overstate the impact of AI on networking. First, the good news. AVA, which is Arista’s autonomous virtual assistant. Fueled by real-time data, AVA is incredibly powerful. It seamlessly navigates networking and security infrastructure from campus to WAN to data center to cloud, continuously monitoring and troubleshooting, isolating root causes without manual labor-intensive tasks. Having seen what AVA can do, I can’t imagine managing my own infrastructure without it and I expect many of our customers will feel the same way.

The bad news, of course, is the massive challenge AI poses for us and our customers by discovering and exploiting security vulnerabilities. This threat landscape demands secure and robust networking. Over the past few months we’ve been collaborating with Anthropic, Google, OpenAI and many others to integrate new AI-enabled security capabilities from foundation models into our existing software security pipeline. We are being invited early as a key infrastructure provider into partnerships like Project Glasswing, folding AI-driven vulnerability discovery and assessment into our established security vulnerability management process.

True network security has become a must-have, not a nice-to-have, and Arista’s EOS operating system is the ideal architectural foundation based on four key principles. First, a single high-quality operating system. Arista has maintained one of the lowest CVE counts, less than 100 in the industry over the last two decades, while others are rising exponentially due in part to the simple fact that multiple networking operating systems tend to have more vulnerabilities than just one.

Second, limiting vulnerability impact through process isolation. EOS keeps each software agent, management plane, or control plane architecturally separate from each other and also from hardware forwarding so traffic keeps moving even if there is a defect in one component. EOS’s state sharing architecture also resists lateral movement, so a defect in one component typically cannot be exploited to attack other agents within the switch. Third, we provide a seamless upgrade process.

Process isolation also means that we can ship a targeted fix to the affected component and install the fix without a maintenance window or network disruption. And fourth, delivering a compliance dashboard to stay current when a security advisory lands. Arista CloudVision brings real-time visibility that turns a stressful advisory day into a manageable one. In addition to providing secure switches, we also provide Zero Trust Networking, or ZTN, technology to help our customers build secure infrastructure. I’d especially like to highlight Macro Segmentation Services, or MSS, a ZTN feature allowing for dynamic security enforcement preventing undesired interactions among users, devices, and applications. Second, we provide Network Detection and Response, or NDR, services that profile, analyze, and proactively detect sophisticated security threats.

And finally, once workload traffic leaves the confines of the local data center, it becomes even more vulnerable to malicious actors. So we offer protection with wire-speed, ubiquitous link and tunnel encryption native in every port with zero performance degradation. I hope this was a helpful summary of how Arista is helping customers take advantage of AI while improving security to meet the new challenges. Back over to you, Jayshree.

Jayshree Ullal (Chief Executive Officer and Chair)

Thank you, Ken. It was useful for me too. With Arista’s uncompromised ZTN approach, we can systematically address the security hazards and parabolic attacks. Our CVE count, our vulnerability count, is often 10 to 50 times better than alternatives. Our customer momentum this year has been significant in the enterprise, in the providers, across data center, campus and AI because we are addressing security proactively. I would like to invite Todd Nightingale, our President and Chief Operating Officer, to describe more about this.

Over to you, Todd.

Todd Nightingale (Chief Operating Officer)

Thanks, J. We’re seeing phenomenal growth across our enterprise business driven by customers building mission-critical networks which benefit from Arista’s industry-leading quality and reliability. As the entire industry responds to AI-powered attack exposure, customers are motivated by the fact that keeping their infrastructure current with security updates will protect, segment and defend against vulnerabilities beyond the network. Arista won a strategic deal at an Asian web services company as they shifted their focus strategically onto speed, scale and resilience. In the new AI era, reliability was the key to the engagement as their teams were frustrated by long-standing quality issues with their existing vendor. Arista was able to demonstrate reliability and scalability while leveraging standards-based technology and a powerful EVPN and VXLAN architecture on our 100 and 400 gig platforms.

This deployment will operate as the front end for their AI deployments moving forward. In the health care sector, leading hospitals are selecting Arista for strategic data center deployment. One important hospital group chose Arista following an exhaustive Zero Trust Networking evaluation. Their primary business goal was to protect sensitive patient data through advanced network segmentation while enabling seamless integration to cloud environments. Arista secured this win by delivering an automated high-performance fabric that perfectly aligned with their trust-nothing, verify-everything security mandate.

By centralizing routing on Arista’s R3 spines, we provided a powerful streamlined layer for traffic management tailored to modern healthcare workloads. With a robust leaf-spine topology, we deployed CloudVision as a service alongside the Arista AVD framework for cloud-based automation and deep visibility, and by integrating Arista’s segmentation service, MSS, the customer can now dynamically automate the entire system. In the hospitality sector, an award-winning regional resort and casino selected Arista to modernize its expanding operations. Realizing their legacy network was a bottleneck for innovation, they architected a truly unified, standards-based architecture across their data center and campus environments to support new guest experiences and rapidly scale their services. Arista’s routing and switching platforms alongside campus access switches are delivering quality and reliability key to performing mission-critical applications like their demanding casino gaming floor network.

They utilize CloudVision and AVD to automate device provisioning and gain the deep real-time visibility required to optimize network performance. In all three of these examples, Arista’s differentiated EOS provided unmatched quality and reliability and integrated seamlessly with their overarching security ecosystem partners. Additionally, our TAC delivered the flawless experience and peace of mind to de-risk these modern enterprise migrations to Arista. 2026 has really been an exciting year, building momentum across our entire enterprise business around the world in data center, campus and AI buildouts.

Thank you, Jayshree.

Jayshree Ullal (Chief Executive Officer and Chair)

Thank you, Todd. Wow, that momentum is indeed unprecedented. I haven’t experienced anything like this until you arrived. We are pleased with Arista’s accelerated networking progress across all our sectors. Our commitment to fulfilling this accelerated demand in the second half of 2026 is really playing out well with our improved execution in supply chain, partnering closely with our vendors. I want to give a special kudos to you and your entire manufacturing team led by Eugenia for the tireless work and progress despite the widespread industry-wide supply chain constraints and shortages.

With this backdrop, we are now increasing our annual guidance for the fourth time in 2026 to 13.3 billion, which represents a 48% annual growth. At Arista we find ourselves in a position to address this ever-increasing total addressable market, not just available market, which now stands at north of 200 billion in 2030, therefore representing a multi-year growth opportunity for us. Our first look at 2027 guidance range puts us in the 38 to 40% range for growth annually to approximately 18.5 billion.

Within this envelope, we expect our AI fabrics target to be the faster growing segment and to double to approximately 7 billion, while our cognitive campus represents a healthy growth of 60%, much faster than the market, to approximately 2 billion in 2027. We do live in exciting times as we harness the power of cloud and AI revolution. It has certainly surpassed my expectations as we exceeded our original $10 billion goal this year to enter revenue dollars in the teens for both 2026 and 2027. We do so in the typical Arista way, bringing our unique combination of innovations, quality, profitability, efficiency and zero debt, making our financials very pristine. Our results would not be possible without the cohesive Arista leadership and team, our elite customers and partners, and of course our supportive shareholders.

And with that, over to you, Chantelle, to shed more light on our impressive financials.

Chantelle Breithaupt (Chief Financial Officer)

Thank you, Jayshree. This Quarter we delivered record high revenue growth at 58.5%, partnered with robust operating margin above 49%. At the same time we invested ahead of demand in R&D, inventory, and supply commitments to support the AI opportunity in front of us. Congratulations to the Arista team for being named to the S&P 100 in September, a great achievement within a short time frame. Let’s dive into the financial details to start off. Total revenues in Q3 were approximately $3.66 billion, up 58.5% year over year and above our guidance of $3.3 billion. This significant growth was driven by our continued strength in both AI and enterprise customers. International revenues for the quarter came in at $682.5 million or 18.6% of total revenue, down from 23% last quarter. This quarter over quarter change was primarily influenced by a shift in the geographic mix of sales to our large global customers.

Year over year, double-digit growth was achieved in all three geographic segments. The overall gross margin in Q3 was 64%, down from 65.2% in the prior year, with supply chain efficiency working to partially offset product cost inflation, and up from 63.4% in the prior quarter driven by end customer mix. Operating expenses for the quarter were $545.3 million or 14.9% of revenue, up from the last quarter at $411 million. Our R&D spending came in at $408.5 million or 11.2% of revenue, up from the last quarter at $278.1 million. Arista continues to demonstrate its commitment and focus on network innovation with additional investment in liquid cooling, high radix switching, and leading AI software.

Sales and marketing expense was $110.9 million or 3% of revenue, down slightly from 3.6% of revenue last quarter, representative of the highly efficient Arista go-to-market methodology. Our G&A costs came in at $25.9 million or 0.7% of revenue, up slightly from $23.1 million last quarter, as we continue to focus on our critical corporate systems and processes. Our operating income for the quarter was $1.8 billion or 49.1% of revenue, demonstrating our ability to invest in innovation while expanding profitability.

Other income (expense) for the quarter was a favorable $138.6 million and our effective tax rate was 20.9% overall. This resulted in net income for the quarter of $1.53 billion or 41.9% of revenue. Our diluted share number was 1.278 billion shares, resulting in a diluted earnings per share for the quarter of $1.20, up significantly with a growth of 55.8% from $0.77 in the prior year period. Now turning to the balance sheet, cash, cash equivalents and marketable securities ended the quarter at approximately $14.4 billion, up from $13.3 billion at the end of Q2. Of the $1.5 billion stock repurchase program approved in May of 2025, $817.9 million for repurchase in future quarters. The actual timing and amount of future repurchases will be dependent on market and business conditions, stock price, and other factors.

Now turning to operating cash performance for the third quarter, we generated approximately $1.2 billion of cash from operations. This was driven by a robust earnings performance coupled with an intentional inventory build to meet our growing customer demand. DSOs came in at 59 days, down from 68 days in Q2 due to the timing of customer shipments and invoicing. Our inventory turns dropped slightly from 1.7 in Q2 to 1.6 for the quarter. We ended the quarter with $3.2 billion in inventory, up from $2.5 billion last quarter.

Inventory level fluctuations are expected to continue as we work through the balancing of components, timing and availability. This could result in quarters of elevated inventory balances affecting the timing of cash flow from operations ahead of customer deployments. Our purchase commitments at the end of the quarter were $11.4 billion, up from $9.7 billion at the end of Q2. As mentioned in prior quarters, this expected activity mostly represents purchases for chips related to new products and AI deployments. Our total deferred revenue balance was approximately $6.8 billion, down from $6.9 billion in the prior quarter. The majority of the deferred revenue balance is product-related. Our product deferred revenue decreased $86 million sequentially versus last quarter.

We remain in a period of ramping our new products, winning new customers and expanding new use cases, including AI. These trends have resulted in increased customer-specific acceptance clauses and an increase in the volatility of our product deferred revenue balances. As mentioned in prior quarters, the deferred balance can move significantly on a quarterly basis independent of underlying business drivers. Accounts payable days were 48 days, down from 57 days in Q2, reflecting the timing of inventory receipts and payments.

Capital expenditures for the quarter were $100.7 million. Our construction work to build expanded facilities in Santa Clara remains on track and we expect construction to be completed in the coming months. As we look ahead, the momentum is strong. We are grateful to our customers and proud of our team’s continuous ability to rise to meet the demands of the networking industry. For the fourth quarter, we are forecasting a range of revenue between $3.9 and $4.0 billion. This positions fiscal year 2026 revenue just over $13.3 billion. At the midpoint, our fourth quarter gross margin outlook is 63% to 64% and operating margin is between 48% and 49%. Diluted EPS is forecasted to be between $1.26 and $1.30 with approximately 1.28 billion diluted shares and the effective tax rate is expected to be approximately 21%.

Looking further ahead to 2027, the momentum continues. For fiscal year 2027, the revenue growth outlook is between 38% and 40% equating to approximately $18.5 billion. At the midpoint, gross margin continues to be in range of 62% to 64% and an operating margin of approximately 49%. Our effective tax rate is expected to be approximately 21%. In closing, there is a lot to be excited about here at Arista Networks. We will continue to be focused on our innovation, execution and delighting customers in the Arista way. Now back to you, Rudy, for Q&A.

Rudolph Araujo (Head of Investor Advocacy)

Thank you, Chantelle. We will now move to the Q&A portion of the Arista earnings call. To allow for greater participation, I’d like to request that everyone please limit themselves to one question. Your line will be placed on mute after your question. Thank you for your understanding. Regina, please take it away.

OPERATOR

We will now begin the Q&A portion of the Arista earnings call. To ask a question during this time, simply press star, then the number one on your telephone keypad. If you’d like to withdraw your question, press star one again. Please pick up your handset before asking questions to ensure optimal sound quality. Our first question comes from the line of Michael Ng with Goldman Sachs. Please go ahead.

Michael Ng (Analyst)

Good morning. Thank you very much for the question. I wanted to ask about your comment around the greater than 10 gigawatts of deployments across 10 compute accelerators for next year. Could you just talk a little bit about whether that is an industry number or an Arista-specific number in terms of those deployments? And how does the diversification of compute potentially create more opportunities for Arista networking relative to just having a handful of compute suppliers?

Thank you very much.

Jayshree Ullal (Chief Executive Officer and Chair)

Yeah, thanks, Michael. As you know, I think much of AI, even in our world, started initially being compute-centric and we’re seeing that change to network. And so, as part of the accelerated networking strategy, we are supporting three types of AI fabrics: scale up, scale out, and scale across. So our guess is by the end of ’27 we will deploy largely in ’26 and ’27 is where the exponential ramp happened across or greater than 10 gigawatts. Now, some of that—much of that—gigawatt may be new, but remember in scale across we can also have existing gigawatts being deployed.

So we’re talking about new distributed 10 gigawatts, but they may already be multiple gigawatts deployed across. So the rationale here is while we are new to scale up, we are touching a variety of XPUs in scale out and scale across—across the rack and across data centers. And we already know with our scale across we are touching multiple XPUs, four or five of them. With the advent of scale up we will add another five in 2027.

OPERATOR

Our next question will come from the line of Meta Marshall with Morgan Stanley. Please go ahead.

Meta Marshall (Analyst)

Great, thanks and congrats on the quarter. I guess, Jayshree, if you could give an update just on how you see that mix of scale across and scale out and scale up just as a mix of your business—clearly scale up nothing today. I think last quarter you had said you expected a third of the demand this year to be from scale across. Just as you’ve continued to increase your guidance and as you look into ’27, just what do you see those mixes being? Thanks.

Jayshree Ullal (Chief Executive Officer and Chair)

Yeah, I think in ’27—Meta, thank you for the kind wishes, we’ve been working hard for this day. The scale up will still be in early trials, so I don’t think there’s a material number associated with scale up in ’27. I do think it could contribute in ’28. So then if scale up is virtually zero, then we’re basically left with most of the use case being scale out and scale across. And as you’ve heard us say in the past, scale across we think will be at least a third.

It’ll probably go higher in ’27. And so the split this year is roughly 70/30. The split next year, maybe—I can’t venture to guess, but I think the 70 may come down, the 30 would go up when it comes to scale across because it’s a very strong use case for us. Arista is highly differentiated with our 7800 scale across platform. And unsurprisingly, the word scale means a lot to us there and our customers: scale for security, scale for performance, scale for reliability. And there’s just, you know, no room for error when you’re connecting millions of XPUs. So we feel very comfortable that these are our two strongest use cases. I also think it’ll fuel—I mean, a lot of this is back-end AI fabric. We’ll come back to revisit the question of front end as well, as we move to more inference and the line between back and front becomes thinner.

OPERATOR

Our next question will come from the line of Ben Reitzis with Melius Research. Please go ahead.

Ben Reitzis (Analyst)

Hey, how you doing, Jayshree? Pretty good quarter and guide there. So I just want—you’ve previously referred to potentially two 10% plus customers into the fourth quarter. Do you mind talking about whether they’re landing in that range and, you know, what the use cases are for, and if you’re excited about those customers still and into ’27? Thanks a lot.

Jayshree Ullal (Chief Executive Officer and Chair)

Yeah, yeah, yeah, yeah. So, you know, I guess diversity is the name of the game and the theme today, right, Chantelle?

Chantelle Breithaupt (Chief Financial Officer)

That’s right.

Jayshree Ullal (Chief Executive Officer and Chair)

We have diverse accelerators, we have diverse models. We want to have diverse 10% customers too. So, as we said before, you know, our dearest ones are M and M. We fully expect our top prior 10% customers to continue to be with us in ’26, and we hope beyond. And we expect to add at least one, maybe two. And a lot of that depends on whether Todd and Eugenia can ship enough product. So we’ll let them decide and we’ll give them all the way into December 31st.

Todd Nightingale (Chief Operating Officer)

We’ll take every day.

Jayshree Ullal (Chief Executive Officer and Chair)

So we’re feeling pretty good about at least three and maybe four.

OPERATOR

Our next question will come from the line of George Nautter with Wolfe Research. Please go ahead.

George Nautter (Analyst)

Hi, guys. Thanks very much. I was just curious about the big sequential jump in R&D. It was really, really significant. I’m just wondering if that included some one-time items. Also, is this the new run rate in R&D going forward? Any perspective there would be great. Thanks a lot.

Jayshree Ullal (Chief Executive Officer and Chair)

Okay, so over to you, Ken. Why did you spend so much money this year? We’re building so much new stuff. The opportunity is humongous in AI, these AI-accelerating systems. Our success with the hyperscaler AI companies depends on our ability to partner. Our ability to partner is based on our understanding of each of their unique requirements and constraints. And also there’s a new technology introduction around liquid cooling. This requires major infrastructure upgrades and technology upgrades on our part. So I think that’s what’s really driving the expansion spending.

Chantelle Breithaupt (Chief Financial Officer)

and sorry, George. And just in your comment, is the new run rate. I’ll still put the framework at, you know, anywhere between 9 and 11% as we work through. So some quarters, like we’ve talked about, we’ll hit this range as we have specific investments. And so I would still keep it in that 9 to 11, more to come as we guide next year in more detail.

George Nautter (Analyst)

But I noticed the prototype bill was very high this quarter, Ken.

Kenneth Duda (President and CTO)

That’s right, because of all the opportunities in the AI space.

OPERATOR

Yeah. Thank you, Josh. Our next question will come from the line of Amit Daryanani with Evercore ISI. Please go ahead.

Amit Daryanani (Analyst)

Yep, thanks a lot and congrats on a really good set of numbers over here. Jesse, you talked initially about the industry moving towards a more network-centric architecture. You know, as customers deploy different type of accelerators, does Arista become involved earlier in designing the overall systems rather than connecting them afterwards? And as you have to work with a more distributed disaggregated compute network, does that change your networking content for deployment?

I know you talked about 10 gigawatts. I’m just wondering, does the network intensity start to change? Well, and then maybe for Chantelle, as you think about this 38, 40% guide for 27, which is extremely impressive, can you just touch on your confidence around the supply chain execution to meet this demand? What’s in the bag versus what’s still closed? Thank you very much.

Jayshree Ullal (Chief Executive Officer and Chair)

This is a very good question. I think until now we’ve enforced our architecture mostly on scale out and scale across. And a lot of that had to do with distributed power location moving to regional edges. A very software-defined type of network with the intensity, like I described, of packets, throughput performance, predictable latency, et cetera. As we start participating with new accelerators, we get a greater chance early in the cycle to see the behavior of these accelerators.

Two or three examples I’d like to highlight is our close work with Cerebras, our work with Microsoft and Maia. These have been going on the last couple of years and has allowed us to tune our buffers, tune our software performance and maximize the I/O throughput, if you will. The recognition of those scale-up designs are still in the works, but they’re already manifesting itself in scale out and scale across. So you bring up a very good point, not only in the actual work we’re doing with these accelerators, but the aggregate impact it has on our network design in terms of scale, performance and reliability.

Chantelle Breithaupt (Chief Financial Officer)

Yeah. And then I think to part two of your question, Amit, and thank you for the kind words at the beginning. I think so. I am confident in the guide and I am confident in the supply chain. What makes confident in the supply chain is, internally, Pad and Yahenya and the team doing a fantastic job every day being scrappy to make sure we can do what we need to do to deliver to our customers. And also confidence: a lot of great conversations and agreements with some of our key suppliers.

And that’s why you see our purchase commitments increasing, because we have the confidence. So internally, externally confident. Part visibility, you know, I think we have two quarters of visibility as we always have and we lean into the other two. But given our highly fungible portfolio, you know, we’re pretty clear where to make that bet. So we’re pretty excited about next year. Thank you.

OPERATOR

Our next question will come from the line of Tim Long with Barclays. Please go ahead.

Tim Long (Analyst at Barclays)

Thank you. Maybe if we could shift a little bit and talk about the campus and branch, you know, pretty good year this year and guiding it to 60% next year. Could you talk a little bit about kind of, you know, what’s enabling you to grow so much faster than the industry and is this something that you see as, you know, a multi-year type of dynamic? Obviously you got strength in, you know, enterprise data centers, but curious, what else is helping this, you know, much higher than industry growth.

Thank you.

Todd Nightingale (Chief Operating Officer)

Yeah, thanks for the question. You know, in a lot of ways I think the enterprise campus market is coming to us. Arista has always led the way in quality and reliability and, over the past few years, just practically every significant enterprise has shifted gears and really considered their campus networks, their branch networks, mission critical with the highest need for reliability. This is only accelerated because of the Glasswing and Methos effect where people are really focused deeply not only on providing the highest level of reliability, but being able to do that as they rapidly patch and adjust their infrastructure over time.

And differentiation with EOS and the ability for Arista software to be able to do this with practically no downtime, with extremely, extremely high uptime, it’s highly differentiated in the market and I really think that’s the core of what’s driving market share gains here. I think the other thing that makes this an incremental process is that it’s had this refresh cycle for pretty long. I believe customers that understand the Arista advantage may take some time to adopt us simply because of the schedule in which they depreciate and upgrade their gear. So we can expect this to be a multi-year cycle.

OPERATOR

Our next question will come from the line of David Vogt with UBS. Please go ahead.

David Vogt (Analyst)

Great. Thanks guys for taking my question. So maybe Chantal, one for you and I’ll wrap two together in one question. Can you kind of help us understand sort of your purchase commitment dynamic and your deferred revenue dynamic against the strong revenue guide that you provided for 2027? So obviously we recognize that you’re confident in the number, but, you know, deferred revenue, I understand that it’s volatile and it varies quarter to quarter, but just help us understand how to think about that metric in the context of a 30 to 40% guide, particularly also with purchase commitments going up, you know, a couple of billion dollars sequentially.

Chantelle Breithaupt (Chief Financial Officer)

Yeah, thank you. Thanks, David. I think there’s a few things. I don’t know if they correlate directly, but they’re all on purpose and designed to serve the customers as we need to exiting Q4 and into 2027. Purchase commitments, you know, from that perspective there are some things additionally added. Now we have memory in there, a memory agreement which has done that. So that’s a multi-year agreement that you’ll see as the Q comes out. And I think on the purchase commitment side, you can probably expect that to go up a little bit more, you know, as we get ready for this 2027 guide.

We have, as far as the deferred revenue. Deferred revenue actually had the largest churn in and out and still remained flat and still delivered a 58.5% revenue growth quarter, which I think is a fantastic outcome. So there you’re seeing, you know, you’re seeing things exit again, released and to get booked back to the deferred balance, which I think is a really healthy sign of the demand that’s fueling that 30 to 38, excuse me, to 40% revenue growth next year.

So I think they’re all related: purchase goods grow to serve that demand and the deferred staying flat to deliver that outcome to the P&L. And we’re pretty excited to see how to continue through 2027.

OPERATOR

Our next question will come from the line of Simon Leopold with Raymond James. Please go ahead.

Simon Leopold (Analyst)

Appreciate that. I wanted to get one quick clarification. You gave us targets for 2027 for campus and AI. Just wanted to check on what the baselines are for 2026. And the question was really on a topic that I think Andy’s been vocal about, but your thoughts about the evolution of switching with the inclusion of either CPO or NPO, what does that mean to Arista? Thank you.

Chantelle Breithaupt (Chief Financial Officer)

Okay, just to clarify, the baseline upon 38 to 40% is the ’26 guide we gave of 13. Yeah. 13.3. 13.3. Yeah. And within that AI is 3.5 and campus is 1.25. Yeah.

Jayshree Ullal (Chief Executive Officer and Chair)

We’re staying with the target numbers because we’ll only know actuals after we ship everything end of the year. And to your second question on optics, you know optics is very integral to Arista’s strategy. You know, Andy Bechtolsheim, our chief architect, lives and breathes this. It doesn’t mean we build everything, but we actually systematically put it together. We first of all strongly believe in copper when you can and optics if you must. Because the minute you go beyond a 1 or 2 meter radius, the flexibility of pluggable optics and lasers is probably the most widely deployed and accepted.

Andy was a pioneer of OSFP that gave us a very wide density of thermal limits and is widely used. And now our new coherent optics LPO modules is something that goes long distance without requiring DSP. And then to meet higher front panel density, we’re very excited about extradrence pluggable optics that is being supported by over 150 vendors. So we think the world is going to remain in a very majority fashion on pluggable optics. Having said that, I think there’s always room for complementing the pluggables with a strong adoption at higher speeds to what we call near packaged optics or open CPO.

We don’t want to build proprietary co-packaged optics. And to solve these constraints, Arista has been pioneering this open CPO that, instead of soldering components, we can use socketed optical engines and pigtail fibers to allow these modules to be pre-tested, et cetera. So we are big fans of these. We think they’ll come on the market in the 28 to 30 time frame. It’s not imminent. But meanwhile, long live pluggable optics.

OPERATOR

Our next question will come from the line of Joseph Cardoso with JP Morgan. Please go ahead.

Joseph Cardoso (Analyst)

Hi, good afternoon. And congrats on the results as well. You know, maybe the question that I wanted to touch on, and maybe it kind of does tails off of a clarification on the last one. You know, when we take a look at the initial full-year guide for 2027, particularly as it relates to maybe the non-AI, non-campus business, I think growth being implied to moderate from the strong 2026 levels. I was just wondering if you can kind of touch on the underlying assumptions or factors that’s maybe driving a little bit more moderation here into 2027 and whether that’s maybe just tough compares or conservatism in terms of supply, et cetera.

Just trying to understand directionally what’s the drivers of the 2027 forecast that relates to the maybe core business. Thank you.

Jayshree Ullal (Chief Executive Officer and Chair)

Thank you, Joe. Well, listen, when some things are growing 60 and 100% and then you say the overall growth is 38 to 40, then obviously some of the things are not growing as fast. Right. We’re very comfortable that everything’s going to grow double digits — some more, some less. And we’re also very comfortable that, given a first guide, literally over a year before that, all sectors are doing well for us: AI, enterprise, specialty cloud providers, front-end networks.

So we started out 2026 wondering where front end would grow. So it’s a cyclical thing. When the back end grows, the front end may grow a little slower. When the back end slows down, the front end may grow a little faster. So I wouldn’t read any conservatism into these numbers. These are wildly higher and optimistic than we had once projected. So enjoy them for a moment and hopefully they’ll get better.

OPERATOR

Our next question will come from the line of James Fish with Piper Sandler. Please go ahead.

James Fish (Analyst)

A fantastic quarter and guide here. Start for 27. Ladies and Ken. And

Jayshree Ullal (Chief Executive Officer and Chair)

we have two gentlemen and two ladies. Yes,

James Fish (Analyst)

And, and Todd. I don’t, I didn’t forget about you, Todd. But look, I appreciate the early outlook, but you guys always talk about one to two quarters of visibility. You tend to be a very prudent team. And so maybe going back to, I think it was Ahmed’s question, I guess the confidence in providing this durability at this scale this early and why we’re going to see this kind of strength persist. Why Arista for scale up in 2028? Thanks.

Jayshree Ullal (Chief Executive Officer and Chair)

Well, I’ll just go back and thank you for the kind words. The kind words to the ladies and gentlemen. That’s right, to all of us. I think that—so I’ll just go back and reiterate the confidence level. You know, there was a lot of thought that was put into a guide this strong this early. So there’s a lot of attention paid with Todd and Ken and Jayshree and myself and team, you know, so we had to get comfortable first, and we’re very comfortable with all the things we’ve done to secure what we need to go ahead. And again, the two-quarter visibility of relationships and technical conversations.

So somewhere between the second half lands, and it’s the usual kind of cadence we have. So nothing’s changed there. And then the second part of your question is about scale up going into 2027, 2028. Yeah, so listen, I think scale up has been a tough market for us because it doesn’t have all the software advantages that we bring, but it absolutely has the hardware skills and all the non-NVIDIA accelerators that Arista is in the best position to connect to. So this movement from standalone basic switches to rack scale is something that Andy, Alex, Hugh Holbrooke, the entire team has been working on and co-developing for a couple of years. It’s hard work.

Just as we were staring at InfiniBand and now we can go, of course it’s going to be Ethernet, we’re looking forward to a time where we were staring at proprietary UALink or NVLink and we’re going to go, of course it’s going to be Ethernet. But these type of migrations are multi-year, and so we’re very confident not only in our ’27 guide, but a promising ’28 ahead as well. And the reason we are is because even though we have two quarters of visibility, we have two years of work behind us.

OPERATOR

Our next question will come from the line of Tal Liani with Bank of America. Please go ahead.

Tal Liani (Analyst)

Hi guys. Hi, ladies and gentlemen. Sorry, I’ll start from the beginning. I missed the call last time and you raised the guidance substantially, and now you’re doing it again. And on the other hand, I heard Chantelle’s explanation about deferred revenues, but the sequentials are slowing down. If I look at total deferred and current deferred, they are slowing down, but you are feeling more comfortable with next year. You’re guiding well above the Street.

So the question is, when you look at orders versus recognizing from deferred because of availability of components, because of releasing kind of revenues, because completion of build-out, et cetera—so what are the drivers for—like, same question but from different angles—what are the drivers for the growth? Is it orders or is there some part there of recognition of historical orders? And then is deferred revenue actually losing some of its predicting a bit?

Just because I see some decoupling between the deferred revenue trends and revenue growth trends.

Jayshree Ullal (Chief Executive Officer and Chair)

Okay, let me start and then Chantelle will take over. So I think first, Tal, we missed you last quarter because we don’t get this level of detail from anyone else on exactly what are the puts and takes. I just broadly look at you and say, hey, it’s great demand. And if you want to dissect demand into how much is fitting into deferred, how much is fitting into our orders, how much is getting shipped into revenue, you’re turning demand into a physics problem that I don’t have the answer for, because I don’t predict or forecast deferred.

Deferred is a strong function of a new use case or a new product that eventually is not a new use case or a new product. So we had millions of dollars come out of deferred because the use case was satisfied. We had millions of dollars go in as deferred, and generally that number, if you look at it over the last few quarters or if you look at it over the entire year, is trending up. But deferred is never going to be infinite; it is going to come out, and other new deferred will go in, or the product becomes familiar and less new.

Right. So it’s important to just look at this big picture. We got demand. We got demand in AI, in enterprise, in campus, in data centers, and we’re just in the best position we’ve been in a long, long time in my 18-year career at Arista. Over to you, Chantelle.

Chantelle Breithaupt (Chief Financial Officer)

Yeah, the only thing—I think it was very well said, and I think that’s the right perspective to take on this so we don’t get too lost in the weeds on a quarter-to-quarter basis. We’re very confident in the demand and the guide. Deferred is a balance sheet account that will reflect whatever happens in the quarter. So that is what it is. The only thing I would add, like I said before, Tal—we did miss you last quarter—was that we anticipate the end of this year from a deferred balance to be higher than we ended last year, which shows that the P&L did what the P&L needed to do without deferred.

And so if that helps you feel more comfortable with that, then that’s the other thing I would leave you with.

OPERATOR

Our next question will come from the line of Ryan Koontz with Needham and Company. Please go ahead.

Ryan Koontz (Analyst)

Great question. I wanted to follow up on some of your scale up commentary and ask about some of the technical design changes a little bit here with obviously including more optics and including liquid cooling, and how will that change your fulfillment model? What things are you including in your sale versus partner to reference third parties, and maybe you can expand a little bit on your product plans around scale up and how to think about the product changes.

Jayshree Ullal (Chief Executive Officer and Chair)

Yeah, actually that’s a really good question, Ryan. We’re still figuring it out ourselves because Arista’s value in the rack scale is still the switch. However, we have to design the whole rack and then work with different partners differently on whether they want the whole rack from us or the rack gets shipped through our manufacturing partners while we basically ascertain the switch. So different strokes for different folks. Because you’ve got three different designs going on with the orthogonal, the cabled backplane, and the cross-rack designs.

Each one is a little bit different. Give us a chance in the next few quarters to share with you what’s going on with each one because there isn’t one answer to your question. But the one last thing I do want to add to that is that what’s very clear is there’s a lot of switches swimming in water. A lot of it’s liquid-cooled.

OPERATOR

Our next question will come from the line of Carl Ackerman with BNP Paribas. Please go ahead.

Carl Ackerman (Analyst)

Thank you very much. Chantelle or Jayshree, I’d like to ask a question that was similar to Piers but in a slightly different way. In the context of your 2027 revenue outlook, can you speak to whether your revenue outlook is predicated on new permitting or financing of power infrastructure to achieve these forecasts? And as you address that, can you speak to whether you require an aggressive drawdown of your deferred revenue balance to achieve your outlook? I think I know the answer, but would love your view.

Thank you.

Jayshree Ullal (Chief Executive Officer and Chair)

What do you think our answer is? It’s so nice to sometimes ask a question ourselves.

Carl Ackerman (Analyst)

I don’t think you need to, but I would love clarification.

Jayshree Ullal (Chief Executive Officer and Chair)

Okay, go for it.

Chantelle Breithaupt (Chief Financial Officer)

We’re not—we don’t guide deferred. So I think that was the answer you were expecting. Second, I would say from the perspective of the guide next year, we are looking at what we know ahead of us: two-quarter visibility, you know, taking a lean on the second half of next year in the sense of what we’ve had conversations with some of our largest customers, the run rate we have in HED’s business in the sense of enterprise, and all that comes together.

But we don’t guide deferred. And his question was, are we counting on data center? The first part. The second part was, are we preparing to draw down deferred to hit the number? So we don’t guide deferred, but I would say that we see a very strong demand signal and demand environment—back to the momentum theme.

Jayshree Ullal (Chief Executive Officer and Chair)

Right, exactly. So I think while we don’t guide deferred, let me be clear that we do see plenty of new use cases and new products. 2027, like ’26, is going to be filled with lots of new products.

OPERATOR

Our next question will come from the line of Jenmar Kokanti with Deutsche Bank. Please go ahead.

Jenmar Kokanti (Analyst)

Yeah, thank you for that. Congrats on the quarter. Great numbers. As SU144 moves towards production in ’28, how should we think about gross margin economics relative to your existing switching portfolio, and how much customer commits do you already have behind those programs? You’re talking about ’27 or ’28? ’27 and ’28. It’s about gross margin for SG144.

Chantelle Breithaupt (Chief Financial Officer)

Look, since we went public, our long-term gross margin has always been in the 60 to 65. I think we’ve tightened the range now to more like 62 to 64. We don’t see any change.

OPERATOR

Our next question will come from the line of Daniel Yu of Bernstein. Please go ahead.

Daniel Yu (Analyst at Bernstein)

Well, congrats on a great quarter. I just wanted to ask how concentrated is the customer base for scale across? Should we think about this as really being driven by the cloud titans for synchronous training, or are we also seeing scale across deployments even among smaller customers, or for inference use cases?

Jayshree Ullal (Chief Executive Officer and Chair)

Yeah, no, I think there are both small use cases and colos for scale across, which would be a footprint switching and routing platforms like the 7280. But the concentration of large customers also is high, with our larger customers opting for the very large AI spines across data centers and requiring the kind of 576-port densi