Arista Networks Q4 Earnings Call Highlights

Key Points

• Arista beat Q4 guidance with revenue of $2.49 billion (up 28.9% YoY) and reported record fiscal 2025 revenue of $9 billion (+28.6%), strong non‑GAAP margins and its first quarter with over $1 billion in net income.
• Management raised the 2026 outlook—targeting roughly 25% growth to about $11.25 billion—and now expects to double AI networking revenue from 2025 to 2026, guiding to $3.25 billion on accelerating Etherlink adoption and an imminent shift to 1.6T switching.
• Executives warned of supply‑chain constraints, particularly memory, saying pricing has worsened and a planned one‑time price increase on memory‑intensive SKUs may be needed, while deferred revenue remains lumpy due to customer acceptance timing for large AI deployments.

Arista Networks NYSE: ANET capped fiscal 2025 with fourth-quarter results that exceeded the company’s revenue and margin targets, as management highlighted continued momentum in AI-focused data center networking and an expanding campus and routing portfolio. On the company’s earnings call, Chairperson and CEO Jayshree Ullal and CFO Chantelle Breithaupt also raised the company’s fiscal 2026 growth outlook, while repeatedly emphasizing supply-chain constraints—particularly around memory—and the lumpy timing dynamics tied to customer acceptance clauses and large AI deployments.

Fourth-quarter results topped guidance

Breithaupt said fourth-quarter revenue was $2.49 billion, up 28.9% year-over-year and above Arista’s guidance range of $2.3 billion to $2.4 billion. Non-GAAP gross margin was 63.4%, slightly above the company’s 62% to 63% guide but down from 64.2% a year earlier, which Breithaupt attributed to a higher mix of sales to large cloud and AI “Titan” customers.

Operating income for the quarter was $1.2 billion, or 47.5% of revenue, contributing to full-year operating income of $4.3 billion, or 48.2% of revenue. Net income reached $1.05 billion, or 42% of revenue, which Breithaupt said marked Arista’s first quarter exceeding $1 billion in net income. Diluted EPS for the quarter was $0.82 on 1.276 billion diluted shares, while full-year diluted EPS was $2.98, up 28.4% year-over-year.

Breithaupt said the quarter’s effective tax rate was 18.4%, lower than normal due to the release of statutory tax reserves after the statute of limitations expired.

Full-year 2025 performance and mix

Ullal described 2025 as a “defining year,” citing 28.6% growth and record revenue of $9 billion, along with a non-GAAP gross margin of 64.6% and non-GAAP operating margin of 48.2% for the year. She also noted Arista surpassed 150 million cumulative ports shipped in the fourth quarter and said international growth in Asia and Europe rose “north of 40% annually.”

Management outlined 2025 revenue by customer sector as:

• Cloud and AI titans: 48%
• Enterprise and financials: 32%
• AI and specialty providers: 20% (Ullal said this group includes Apple and Oracle, along with “emerging neo clouds”)

Ullal said Arista had two customers above 10% of revenue in 2025, with “Customer A and B” contributing 16% and 26%, respectively. She said the company expects a more diversified base in 2026, potentially adding “one, maybe even two additional 10% customers,” though she cautioned that outcomes depend on variables such as acceptance criteria and shipment timing.

AI networking and product initiatives

Ullal said Arista’s core data center business is deployed across 10G to 800G Ethernet, with 1.6T migration “imminent.” She cited growing adoption of the company’s Etherlink AI products, stating Arista had gained more than 100 cumulative customers for Etherlink and is co-designing AI rack systems where 1.6T switching is expected to emerge during 2026. Ullal also emphasized Arista’s interoperability with NVIDIA while stating the company is working to broaden an open AI ecosystem that includes AMD and other partners.

On AI revenue, Ullal said Arista now expects to double AI networking revenue from 2025 to 2026, guiding to $3.25 billion in AI networking revenue for 2026, up from a prior goal of $2.75 billion. In Q&A, she addressed “scale-up” networking, saying production-level scale-up is expected primarily in 2027 and tied to the maturation of the ESUN specification and the shift toward 1.6T products, with the earliest meaningful spec timing expected around Q4.

Ullal also discussed “scale-across” needs as AI workloads become more distributed across data centers due to power and bandwidth constraints. She said Arista’s 7800 spine platform was designed for robust routing configurations supporting these use cases and highlighted coherent optics partnerships, while noting Arista does not build the optics itself.

Campus, routing, software and services

Ullal said Arista exceeded its strategic targets of $800 million in campus and branch expansion and $1.5 billion in AI center networking in 2025. She described routing and campus as “network adjacencies,” and said campus plus routing contributed approximately 18% of revenue.

Arista reiterated its goal of $1.25 billion in cognitive campus and branch revenue for 2026. Ullal also pointed to the July 2025 VeloCloud acquisition as supporting a “secure client to branch to campus solution with unified management domains.”

Software and services, including subscriptions such as A-Care and CloudVision, contributed about 17% of revenue. Breithaupt said services and subscription software represented 17.1% of fourth-quarter revenue, down from 18.7% in the prior quarter due to normalization after a “non-recurring VeloCloud service renewal” in Q3. Ullal said the company added about 350 CloudVision customers and has deployed an aggregate of 3,000 customers over the past decade.

Guidance raised for 2026; supply chain and deferred revenue in focus

For fiscal 2026, management raised its revenue outlook to 25% growth, or approximately $11.25 billion. Breithaupt said Arista expects non-GAAP gross margin of 62% to 64%, inclusive of mix and anticipated supply chain cost increases for memory and silicon, and raised the operating margin outlook to approximately 46%. For Q1 2026, the company guided revenue of approximately $2.6 billion, gross margin of 62% to 63%, and operating margin of about 46%, with an effective tax rate of roughly 21.5%.

Ullal and Breithaupt fielded several questions about supply constraints, especially memory. Ullal said pricing had worsened significantly entering 2026 and that the company could not continue absorbing increases indefinitely, indicating Arista expects a one-time price increase on selected “memory-intensive SKUs.” She also said purchase commitments disclosed on the balance sheet were “not enough” and that the company needs more memory supply.

Breithaupt provided working-capital details, including:

• Cash, cash equivalents, and marketable securities: $10.74 billion
• Q4 operating cash flow: $1.26 billion
• DSOs: 70 days (up from 59 days in Q3)
• Inventory: $2.25 billion; turns of 1.5x
• Purchase commitments: $6.8 billion (up from $4.8 billion)
• Total deferred revenue: $5.4 billion (up from $4.7 billion)

Management said product deferred revenue increased by approximately $469 million versus the prior quarter and noted volatility tied to customer-specific acceptance clauses and new product ramps, particularly in AI. Executives repeatedly declined to forecast deferred revenue movements, emphasizing that acceptance timelines can range from six months to 12–18 months, and that releases can appear “lumpier” depending on deployment timing.

On capital returns, Breithaupt said Arista repurchased $620.1 million of shares in Q4 and $1.6 billion in fiscal 2025, with $817.9 million remaining under the repurchase program approved in May 2025.

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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