Arista Networks, Inc (NYSE:ANET) is benefiting from a part of the AI boom that gets considerably less attention than accelerators. As AI data centers become larger and more complicated, moving data between thousands of accelerators is becoming just as important as the accelerators themselves. That is putting networking companies like Arista increasingly in the spotlight. A recent Deutsche Bank report even described the industry as moving toward a new phase where connectivity becomes increasingly important as AI infrastructure expands.
The market has noticed. The stock is up 54.08% year-to-date. Arista’s second-quarter revenue jumped 37.7% year over year to $3.04 billion, its first quarter above $3 billion. Management also raised its 2026 revenue-growth target to roughly 40%, or about $12.6 billion.
But the more interesting story isn’t simply that Arista is growing quickly. It is why customers are choosing it as AI networks become harder to build.
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AI is making networking harder
An AI data center isn’t just a collection of expensive GPUs. Those chips need to communicate with each other constantly, and inefficient networking can leave expensive computing capacity sitting idle.
This is where Arista’s software becomes important. Its EOS operating system runs across its networking products, giving customers a common architecture as their networks become larger and more complicated.
According to the management, several technologies are designed specifically for AI workloads. Its Smart System Upgrade allows customers to update software without taking systems offline, while Multipath Reliable Connection and Segment Routing are designed to move data more efficiently across increasingly complex AI networks.
That sounds technical, but the business implication is fairly simple: when a customer has billions of dollars of computing equipment running inside a data center, a network that helps those machines work efficiently is not something it wants to experiment with casually.
That’s where the moat gets interesting
Arista Networks, Inc ‘s competitive advantage isn’t just its switches. It has spent more than a decade building EOS, developing relationships with some of the world’s largest cloud companies and learning how to operate massive networks.
That experience is becoming particularly relevant as AI networking moves beyond connecting chips inside a single data center. Arista is also targeting what it calls “scale-across,” connecting AI infrastructure across campuses and even geographically separated data centers. Management says more than 100 customers are now using these Etherlink AI fabric products, compared with only four or five customers a couple of years back.
There is another interesting wrinkle. Arista isn’t trying to lock customers into one type of AI accelerator. Its networking technology can work with different architectures, including AMD’s accelerators and Google’s TPUs. That could become increasingly valuable if the AI industry becomes less dependent on a single chip ecosystem.
Hence, Arista’s moat is the combination of its EOS software and deep integration into customers’ large-scale networks, which makes switching away costly and disruptive.
But the valuation leaves little room for disappointment
The market already understands that Arista is a quality business. At roughly 39.2x forward earnings, investors are paying a substantial premium for that growth.
And there are real risks. Arista’s gross margin fell year over year in Q2, while management continues to warn about tight supplies and rising component costs. The company has also committed billions of dollars to secure components, illustrating just how intense demand has become.
More importantly, competitors aren’t standing still. Cisco, Broadcom, and other networking suppliers have enormous resources and are also trying to capture spending from the AI infrastructure buildout.
Conclusion
As AI data centers scale up, the network connecting all those chips is becoming a bigger part of the equation. Arista has built an advantage here through its EOS software, long-standing relationships with major customers, and years of experience managing large networks. Its support for different AI architectures could make that advantage even more valuable as the industry evolves.
The catch is the valuation. At 39.2x forward earnings, investors are already expecting a lot from Arista. And with deep-pocketed competitors like Cisco and Broadcom chasing the same opportunity, gaining more share won’t be easy. The good news is that Arista doesn’t necessarily need to take share to keep growing if the networking market itself continues to expand.
Market Sentiment
Market sentiment toward Arista Networks appears to be strengthening. The number of hedge funds holding the stock in Insider Monkey’s database increased from 85 at the end of Q1 to 91 at the end of Q2 2026. The total value of their positions rose from about $5.21 billion to $6.77 billion.
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This article is originally published at Insider Monkey.
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