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Benefiting from strong demand for its equipment from cloud computing companies and artificial intelligence (AI) applications, Arista Networks, the leader in high-speed Ethernet switches and Nvidia's rival in AI networking, maintained strong double-digit revenue growth, with both second-quarter results and third-quarter guidance exceeding Wall Street expectations.

After the U.S. stock market closed on Tuesday, July 30, Eastern Time, Arista, headquartered in California, released its second quarter financial report ending June 30 this year.

1) Key financial data

Operating income: Second-quarter revenue was $1.69 billion, up 15.9% year-on-year, compared with analysts' expectations of $1.65 billion and up 16.3% year-on-year in the first quarter.
EPS: Adjusted earnings per share (EPS) in the second quarter were $2.10, up 32.9% year-on-year, compared with analysts' expectations of $1.94 and up 39.2% year-on-year in the first quarter.
Net Profit: Net profit in the second quarter was US$672.6 million, a year-on-year increase of 34.2% and a year-on-year increase of 46% in the first quarter.
Gross profit margin: The adjusted gross profit margin was 65.4% in the second quarter, 64.2% in the first quarter, and 61.3% in the second quarter of last year.
Operating profit margin: Adjusted operating profit margin was 46.5% in the second quarter, 47.4% in the first quarter and 41.6% in the second quarter of last year.

2) Performance guidance

Revenue: Third-quarter revenue is expected to be between $1.72 billion and $1.75 billion, while analysts expected $1.72 billion.
Gross profit margin: The adjusted gross profit margin in the third quarter was 63% to 64%, compared with 63.1% in the third quarter of last year.
Operating profit margin: The adjusted operating profit margin in the third quarter was approximately 44%, while analysts expected 43.1% and it was 46.1% in the third quarter of last year.

After the financial report was released, Arista's stock price, which closed down nearly 2.9%, staged a V-shaped rebound after the US stock market closed. It first accelerated its decline, once falling more than 5% after the market closed, and then turned upward, erasing the decline after the market closed and turning up, and rose nearly 4% after the market closed. Commentators said that AMD raised its sales forecast for data center chips this year after the market closed, reflecting the growth momentum of AI chip demand. AMD's stock price rose sharply after the market closed, driving up some technology stocks such as Nvidia.

The revenue guidance for the third quarter is as high as 16%, maintaining the growth rate of more than 10% in the first two quarters

When releasing the financial report, Arista's Chief Financial Officer Chantelle Breithaupt emphasized that the company's EPS earnings in the second quarter soared by about 33% year-on-year, thanks to strong revenue and gross margin performance.

Based on the third quarter guidance range, Arista expects its third quarter revenue to grow by approximately 14% to 16%, continuing the growth rate of more than 10% in the first two quarters of this year.

Last week, Arista's peer Juniper Networks reported second-quarter revenue and profit that fell short of analysts' expectations, hurt by weak spending on its network equipment by cloud computing companies. However, Juniper pointed out at the time that many of its customers had already digested their inventory and were investing in strengthening their AI infrastructure.

As a B2B network switch and router manufacturer, Arista mainly serves cloud service providers including Microsoft, Meta, etc. When announcing its first quarter earnings report, Arista rarely raised its full-year revenue guidance for this year, and pointed out that the high performance requirements for training large AI models have boosted cloud service providers' demand for the company's hardware products.

Last month, Citi reported that the accelerated penetration of Ethernet has brought opportunities to Nvidia and Arista. The two are developing Ethernet technology in close sync and are expected to launch high-speed Ethernet solutions in the near future. Both Nvidia and Arista Networks will have end-to-end 800G solutions by the end of 2024 or early 2025. Nvidia and Arista may also be consistent in their roadmaps for 1.6T products (based on 102.4T chips).

Citigroup highlighted that Nvidia is a stronger Ethernet competitor than Arista expected. Nvidia said it expects the Spectrum-X platform to become a multi-billion dollar product line within a year, highlighting that many customers are willing to adopt Nvidia's bundled approach in the Ethernet field as well.