The Ethernet Tollbooth: Arista Rides Broadcom Silicon to Break Nvidia’s InfiniBand Monopoly
Arista Networks keeps stealing AI infrastructure deals away from Nvidia's proprietary grip, and the case for owning the open Ethernet alternative gets stronger every time the stock pulls back.
After its last earnings report, I added to my Arista Networks (NYSE:ANET | ANET Price Prediction) position, and I bought again this month when the stock fell 15.28% in four weeks. I keep adding because every quarter gives me a new reason to.
Why I Keep Hitting the Buy Button
Every AI cluster needs a network fabric, and Arista sells the open Ethernet option. It builds on merchant silicon from Broadcom (NASDAQ:AVGO) and adds EOS, its own operating system, on top. Ethernet keeps taking ground from proprietary interconnects. Arista’s Etherlink AI fabrics now have more than 100 cumulative customers, up from 4 to 5 in 2024. CEO Jayshree Ullal remembered the move from InfiniBand to Ethernet and said “that transition took two to three years.” I want to own the company that keeps winning that move.
Three Receipts Behind My Conviction
Growth is speeding up. Q2 revenue reached $3.0357B, up 37.69%, the company’s first $3 billion quarter. The 2026 outlook was raised to about $12.6 billion, or 40% growth. Its Analyst Day goal was $10.5 billion.
Margins are expanding while sales grow. Non-GAAP operating margin rose to 49.9% from 48.8%. EPS of $1.02 beat the $0.8856 consensus. That makes six consecutive earnings beats.
Its balance sheet funds itself. Cash and marketable securities came to about $13.3 billion. Deferred revenue climbed to roughly $6.9 billion, and Q2 capex was only $29.7 million.
Why My Money Skips Nvidia and Cisco
NVIDIA (NASDAQ:NVDA) trades at a lower P/E, about 42, and its networking revenue grew 138%. I pass anyway. Its supply obligations reached $279.00 billion, guarantees for partners go as high as $108.5 billion, and days sales outstanding rose to 60 days from 45. I’d rather own the open fabric that also links AMD chips and Google TPUs.
Cisco Systems (NASDAQ:CSCO) pays a $0.42 quarterly dividend, and Arista pays none. Even so, Cisco’s FY2026 revenue grew 11.77%, its operating margin guidance is 35.5%–36.5%, and its cash fell 23.8%. For building wealth over decades, I’ll take compounding over a check each quarter.
Risk That Could Break This Position
Arista relies on a few buyers. Microsoft and Meta are its anchor customers, and Ullal expects “1, maybe 2 10% customers” this year. It also relies on a predominant merchant silicon vendor, and gross margin slid to 63.4% from 65.6%. At a P/E near 62, a lost customer would hurt.
My thesis still holds. Purchase commitments almost tripled to about $9.7 billion under multiyear vendor agreements, and operating margin rose even as gross margin fell. With more than 100 AI customers, Arista depends less on any one name every quarter.
What Keeps My Buy Button Active
For Q3, Arista guides to about $3.30B in revenue and EPS of $1.06-$1.08. Ullal sizes the scale-across market at $15 billion to $20 billion by 2030, and 1.6T switches should reach production in 2027. Every new AI data center needs a network, and that keeps sending my money to Arista.
The AI data-center expansion is the whole background here, and the picks-and-shovels names beyond the chipmakers are worth knowing (we covered seven of these suppliers, from power to networking, which you can read here).
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Alex Sirois is a financial writer with experience spanning both retail and institutional investing. He has written for InvestorPlace and held roles at BNY Mellon and Bernstein, giving him a perspective that bridges Main Street portfolios and Wall Street analysis.
Alex holds an MBA from George Washington University and has built his career across multiple industries, including e-commerce, education, and translation — a breadth of experience that informs how he breaks down complex financial topics for everyday investors. His writing is conversational, actionable, and grounded in long-term, buy-and-hold investing principles.
At 247 Wall St., Alex focuses on delivering analysis that is both accessible and useful, with a clear emphasis on helping readers make more informed decisions with their money.
