Arista Networks NYSE: ANET reported fiscal first-quarter 2026 results for the period ended March 31, 2026, with management pointing to continued momentum in cloud, AI networking, and enterprise, while also flagging supply constraints and related cost pressures that could weigh on margins.
Q1 revenue tops guidance as AI and specialty providers lead
Chief Financial Officer Chantelle Breithaupt said total revenue in Q1 was $2.71 billion, up 35.1% year-over-year and above the company’s guidance of $2.6 billion. Breithaupt said growth occurred “across the customer sectors,” led by “our AI and specialty providers customers within the quarter.”
International revenue was $418.9 million, or 15.5% of total revenue, down from 21.2% in the prior quarter. Breithaupt attributed the sequential decline primarily to “Americas-based sales to our large global customers.”
On profitability, Arista posted a 62.4% gross margin, within its guided range of 62%–63% but down from 63.4% in Q4. Breithaupt said the quarter-over-quarter decrease was due to “the lower mix of sales to our enterprise customers in the quarter.” In response to a margin question later in the call, she said the “primary driver is mix of the customer segments,” noting that larger customers carry lower gross margin accretion, while other factors such as “tariffs or the memory cost or the silicon cost” can be secondary influences depending on the quarter.
Operating expenses were $396.8 million, or 14.6% of revenue, and operating income was $1.29 billion, representing an operating margin of 47.8%. Net income totaled $1.11 billion, or 40.9% of revenue. Diluted EPS was $0.87 on 1.27 billion diluted shares, up 31.8% from the prior year.
CEO highlights switching share gains and three AI fabric use cases
Chairperson and CEO Jayshree Ullal said the company saw “significant velocity in all our sectors” in Q1 and now holds the “number one market share in high-speed switching in the greater than 10 Gb Ethernet category,” citing major market analysts’ 2025 assessments.
Ullal spent much of her prepared remarks detailing Arista’s AI networking approach and the traffic patterns associated with AI training and inference, describing AI workloads as including both “long-lived elephant flows” and short-lived, less predictable flows that can introduce burstiness and affect throughput.
She outlined three AI fabric use cases:
- Scale-up: Ullal said this includes familiar technologies such as NVLink and PCIe, and noted that Ethernet for Scale-Up Networking (ESUN) specifications are enabling more flexible Ethernet-based scale-up designs. She said scale-up will be “a new entry for Arista in 2027 and beyond.”
- Scale-out: Horizontal scaling across leaf-spine fabrics, where Arista highlighted protocol acceleration, cluster load balancing, and wire-rate performance to avoid bottlenecks as nodes increase.
- Scale-across: Connecting AI accelerators across locations to optimize bandwidth and power, requiring traffic engineering, deep routing, encryption, and integrated optics based on EOS, including deployments using the 7800R3 and 7800R4 series.
Ullal said Arista has more than 100 cumulative customers in 800G Ethernet deployments and expects “the addition of 1.6 TB in 2027 at production scale.” She also discussed a customer moving “from InfiniBand to Ethernet at production scale over the last two years,” describing the result as a low-latency distributed AI supercomputer fabric across global regions.
Enterprise and campus momentum, including VeloCloud integration
Ullal said Arista’s enterprise business delivered strong Q1 results “both in data center and campus.” She added that the company’s VeloCloud acquisition is “integrating well into our branch and campus strategy,” helping expand distributed enterprise use cases and “a new channel motion with managed service providers.”
Co-Presidents Ken Duda and Todd Nightingale highlighted customer wins across several verticals, emphasizing Arista’s EOS software, automation, and observability capabilities. Duda described a NeoCloud AI customer that moved away from an incumbent white-box architecture, selecting Arista’s “commercially proven and reliable scale-out architecture” and deploying 800G leaf and spine products to connect AMD MI-series XPUs. Duda said the customer used Arista Validated Design (AVD) to automate provisioning and Arista cluster load balancing to scale to “thousands of XPUs.”
Duda also detailed a service provider win at a regional fiber-to-the-home operator, citing modernization of backbone and peering edge routing using 7280 platforms with EOS FlexRoute and AVD automation, and noted a security integration with Palo Alto Networks.
Nightingale described an insurance-sector modernization effort where the customer deployed Arista’s R3 series in a monitoring fabric (DMF) along with campus switches to simplify out-of-band management, leveraging EOS telemetry features including VXLAN header stripping. He also cited a manufacturing customer with more than 100 global factory sites that adopted a universal leaf-spine campus architecture running a single EOS binary across campus, data center, and WAN, supported by CloudVision provisioning and tooling such as latency analysis and packet drop forensics.
Supply constraints drive multi-year commitments and margin trade-offs
Despite strong demand, Ullal said Arista is facing “industry-wide shortages across the board,” including “wafers, silicon chips, CPUs, optics, and… memory,” alongside higher procurement costs. She said demand is “outstripping our supply this year” and that the company anticipates gross margin pressure due to mix and “trade-offs we are making to pay more to assure supply continuity.”
During Q&A, Ullal said the supply chain issue is no longer viewed as a one- or two-quarter event, but “a one or two year phenomena,” and added the company is willing to “hurt our gross margins to supply” customer demand to avoid idle GPU infrastructure due to network shortages.
Breithaupt said purchase commitments rose to $8.9 billion from $6.8 billion in Q4, largely reflecting chips for new products and AI deployments. Inventory ended the quarter at $2.38 billion, up from $2.25 billion, which she called a “calculated investment” in raw materials. Nightingale said demand is surging for the newest platforms, driving needs for modern silicon and more memory than expected. Ullal added that the “real hole is lead times,” pointing to wafer fab shortages and long lead times for chips.
Deferred revenue totaled $6.2 billion, up from $5.37 billion, with product deferred revenue increasing about $643 million sequentially. Ullal attributed longer qualification and acceptance cycles to both customer readiness (facilities, rack-and-stack, cabling) and new product ramp complexity, saying cycles that “used to be two to four quarters” have extended to “six to even eight quarters.” Breithaupt emphasized that deferred revenue is recognized each quarter as balances age, with “things come in and things are recognized to the P&L.”
Outlook raised: 2026 revenue target $11.5B, AI goal lifted to $3.5B
Ullal said Arista raised its 2026 forecasted growth “slightly to 27.7%,” targeting $11.5 billion in revenue. She also said the company increased its AI target to $3.5 billion for the year, “more than doubling our AI sales annually.” Breithaupt reiterated a fiscal-year gross margin range of 62%–64%, operating margin around 46%, and an expected tax rate of 21.5%.
For Q2, Breithaupt guided to:
- Revenue: approximately $2.8 billion
- Gross margin: 62% to 63%
- Operating margin: 46% to 47%
- Diluted EPS: approximately $0.88 (about 1.27 billion diluted shares)
On capital allocation, Breithaupt said Arista ended the quarter with approximately $12.35 billion in cash, cash equivalents, and marketable securities, and did not repurchase shares during Q1. She said $817.9 million remained under the company’s $1.5 billion repurchase program approved in May 2025.
Looking longer term, Ullal and management discussed growth drivers across AI training today and a potential rise in more distributed inference over time. In response to a question on enterprise inference, Ullal said customers are in “very, very early trials and stages,” but she expects more activity over the next couple of years as AI becomes more distributed and broader high-performance compute use cases are “getting revived for AI.”
About Arista Networks NYSE: ANET
Arista Networks, Inc is a technology company that designs and sells cloud networking solutions for large-scale data centers and enterprise environments. The company is best known for its high-performance switching and routing platforms, which are used to build scalable, low-latency networks for cloud service providers, internet companies, financial services, telecommunications, and enterprise IT. Arista's offerings emphasize programmability, automation and telemetry to support modern, software-driven network architectures.
Central to Arista's product portfolio is its Extensible Operating System (EOS), a modular network operating system that provides consistent programmability, stateful control and advanced visibility across the company's hardware platforms.
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