Arista’s AI Growth Story Builds, but Scale-Up Revenue May Have to Wait

Arista Networks Inc. (NYSE:ANET) shares jumped in premarket trading Wednesday after the networking company topped third-quarter expectations and issued an above-consensus fourth-quarter outlook.

Management also outlined how Arista expects its AI networking opportunity to develop through 2027 and beyond, with scale-out and scale-across driving near-term growth while scale-up remains a longer-term opportunity.

CEO Jayshree Ullal said, “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.”

Earnings Beat, Strong Q4 Outlook

Arista reported third-quarter adjusted earnings of $1.20 per share, beating the $1.08 analyst estimate, according to Benzinga Pro. Revenue came in at $3.66 billion, above the $3.33 billion Street estimate and up 58.5% year over year.

The company reported a gross margin of about 64% and an operating margin above 49%.

For the fourth quarter, Arista expects adjusted earnings of $1.26 to $1.30 per share, compared with the $1.15 analyst estimate. Revenue is expected between $3.9 billion and $4 billion, ahead of the $3.6 billion estimate.

Arista also expects 2026 revenue of approximately $13.3 billion, representing about 48% growth.

AI Fabrics Target Rises, Scale-Up Stays a 2028 Story

Arista expects total revenue to grow 38% to 40% in 2027 to approximately $18.5 billion and expects its AI fabrics target to roughly double to about $7 billion.

Arista also forecasts more than 10 gigawatts of deployments across 10 or more accelerator types by the end of 2027.

But Ullal said scale-up networking itself is unlikely to make a material contribution next year. That leaves scale-out and scale-across as the main near-term AI fabrics drivers.

Scale-Across Could Take a Bigger Share

Ullal said the current mix between scale-out and scale-across is roughly 70/30, but expects scale-across to account for a larger share in 2027.

“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,” Ullal said.

Ullal also pointed to Arista’s 7800 platform as a differentiator in scale-across deployments.

Arista Invests Ahead of the Next AI Phase

Non-GAAP R&D spending rose to $408.5 million from $278.1 million in the prior quarter, with management citing investments in liquid cooling, high-radix switching and AI software.

Purchase commitments reached $11.4 billion, up from $9.7 billion in the second quarter. Management said the commitments mostly represented chip purchases related to new products and AI deployments.

Looking further out, Ullal framed Ethernet as a potential challenger to proprietary scale-up technologies including UALink and NVLink.

“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,” Ullal said.

ANET Stock Price Activity: Arista Networks shares are trading higher by 7.12% at $182.00 during premarket trading on Wednesday, according to Benzinga Pro data.

Photo: Shutterstock