Jayshree Ullal, Chief Executive Officer of Arista Networks, issued a stark warning regarding mounting pressures in the memory supply chain, describing current component prices as 'horrendous' and noting that shortages are intensifying. The primary driver, according to Ullal, is the relentless scramble for artificial intelligence data center equipment, which is squeezing parts availability and extending lead times across the industry.
Financial Performance and Forward Guidance
Despite these supply chain headwinds, Arista delivered robust financial results for its fourth quarter. The company reported revenue of $2.488 billion, representing a significant year-over-year increase of 28.9%. Non-GAAP earnings for the quarter reached 82 cents per share. Looking ahead, management provided first-quarter revenue guidance of approximately $2.6 billion, with a projected non-GAAP gross margin between 62% and 63% and an operating margin near 46%.
The company's stock closed the last trading session at $141.59, marking a gain of 4.79%, or 6.47 points. During the session, shares traded between $138.00 and $148.77, with volume reaching roughly 21.8 million shares. Following the earnings report, the stock saw a notable surge of over 17% in after-hours trading.
Market Context and Analyst Reaction
Arista's core business of supplying high-performance Ethernet switches and routers positions it as a critical vendor for massive hyperscale data centers operated by companies like Microsoft and Meta Platforms. The ongoing build-out of AI-focused infrastructure by these tech giants has created surging demand for Arista's networking solutions.
Analysts have reacted positively to the company's performance and outlook. Amit Daryanani of Evercore ISI raised his price target on Arista to $200 from $175, maintaining an Outperform rating. He characterized the December quarter as a 'robust beat' and stated that the company's elevated growth target 'underscores their momentum.' Meanwhile, William Blair analyst Sebastien Naji noted that Arista holds $6.8 billion in purchase commitments and is actively pursuing a goal of $3.25 billion in AI networking revenue by 2026, with plans to mitigate negative impacts on gross margins.
Key Risks and Investor Focus
Investors are intently focused on several key issues. The state of component supply, particularly memory, and its effect on Arista's margins are paramount. Memory is a fundamental component in the systems Arista sells to data centers, and significant cost increases directly pressure gross margin—the profit remaining after accounting for the cost of goods sold. The company has acknowledged that targeted price hikes to customers may become unavoidable.
Other risks highlighted by the company include potential disruptions from tariffs, export controls, customer concentration, and general supply chain tightness, any of which could delay orders or increase expenses and disrupt demand momentum.
Upcoming Catalysts
Market participants are looking ahead to several key events for further updates. Arista management is scheduled to present at Bernstein's 'What's next in Tech' event on February 25, followed by an appearance at the Morgan Stanley Technology, Media and Telecom Conference on March 3. Traders will be listening for commentary on memory pricing trends, gross margin sustainability, and the health of cloud capital expenditure demand.
With U.S. markets closed for the Presidents Day holiday, the immediate market reaction to the CEO's cost warnings and the quarterly results will be seen when trading resumes on Tuesday. The central question for the session will be whether Arista can maintain its margin profile in the face of persistent memory constraints or if tighter component pricing will eventually weigh on end demand.
