To learn how to improve your results in the market dramatically by buying options on stocks like Ford and Tesla, take a two-week trial to my special service, Tactical Options: Click here. Members have made more than 5x their money this year.
Supply chain challenges since the pandemic have been the bane of corporate America. Now those challenges are hitting technology companies. Well, most of them.
Analysts at Citigroup C noted on Tuesday that Cisco Systems CSCO (CSC SC O) is especially vulnerable to component delays. Competitors with better software-based products are taking market share.
Investors should focus on Arista Networks ANET (ANET), one of those competitors.
The Santa Clara, Calif.-based company is a rare business opportunity. It is not the biggest player in switching. That distinction clearly belongs to Cisco Systems, yet it is the fastest growing company by a long shot. It is also dominating in the cloud, the best part of the network switching business.
Arista supplies scalable, network hardware and software solutions to hyperscale data centers; specialty cloud providers; financial services companies; and internet service providers. All of those business verticals grew at double digits in 2021, according to Jayshree Ullal, chief executive officer. And the overall business is not especially tied to a few large customers.
Ullal noted in February that Microsoft MSFT (MSFT) is the only customer to account for greater than 10% of sales.
The big attraction is Arista’s CloudVision software. The platform facilitates cloud-based, network virtualization. This is a fancy way of saying software services like security can be bolted on at scale with little fuss.
Arista is currently working with cybersecurity firms Checkpoint Software (CHKP), F5 Networks FFIV (FFIV), Fortinet FTNT (FTNT), Palo Alto Networks (PANW) and VM Ware (VMW).
The cloud brings scale, reduced costs and modularity. This means those add-ons can also be modified on demand. It also provides the type of flexibility that is simply not possible in the legacy IT environment.
A typical legacy deployment requires 1 administration staff for every 1,000 servers. Out of the box, the Arista solution provides a tenfold improvement. It is programmatic, automated and can be scaled to millions of users. The company says clients have noted cost savings of 10x ZRX – 40x.
This explains why growth has been off the charts.
Arista is number one in market share for 100-gig and 400-gig ports, a key metric for the fastest networks. Sales of these products doubled in 2021 to $200 million, and Ullal says they will double again in 2022 to $400 million.
Overall sales in 2021 jumped to $2.95 billion, a gain of 27%. Annual cash flow exceeded $1 billion for the first time. And the number of CloudVision customers exceeded 1,300, also a record.
Customers are bypassing legacy hardware solutions offered up by Cisco because Arista provides the type of data-driven networking that big clients need to fulfill their digital transformation objectives. It really is that simple.
The global market for data center switching alone reached $15.2 billion, according analysis from Research and Markets, a specialty analytics firm. Analysts expect the market to swell to $19.9 billion by 2026, a compound average growth rate of 5.2%.
Jim Suva, the senior tech analyst at Citigroup believes Cisco will continue to lose networking market share to more nimble, focused competitors like Arista. Suva now rates Cisco shares as “sell”, a rarity among large Wall Street firms.
The Arista story is far from over. The growth of hyperscale data centers and the renewed enterprise focus on cybersecurity should help Arista executives meet the lofty 2022 growth projections.
Shares trade at 30x forward earnings and 13.4x sales. While these numbers may seem dear relative to Cisco (13.9x forward earnings and 4.2x sales), investors should focus on growth and market share gains.
Arista is winning. Shares could trade to $170 within 12 months, a gain of 41% from current levels.