Arista Networks could be an early way to get into artificial intelligence, according to Citi. Analyst Atif Malik upgraded the networking equipment stock to buy from neutral and raised his price target to $220 from $177. His new target implies a 17.6% upside from Wednesday’s close. Malik said the company should see its cloud spend rebounding going into next year, in line with a recovery in spending on traditional data center infrastructure and the capital expenditures of top customers. And Arista should be a market share winner in 2024 and 2025 as AI clusters grow and become more broadly used across networks already in place, Malik said. “We like ANET’s exposure to generative AI long-term … and expect the stock’s multiple to rerate as 400G cloud spend recovers, hyperscaler capex re-accelerates, and opportunities to monetize generative AI materialize into next year,” he said in a note to clients Thursday. With this in mind, Malik raised his earnings per share estimates for the 2024 and 2025 fiscal years by 10% and 12%, respectively. These upped forecasts reflect margin expansion and stronger topline growth in the mid-teens. He also said AI can create a business opportunity between $2 billion and $5 billion over the next three to five years. That should come as Arista wins back-end network market share from Nvidia’ s Infiniband. Elsewhere, Malik said capital expenditures in the recent quarter and guidance on the financial measure for the full year were mixed for Microsoft and Meta , Arista’s two major cloud customers. While noting the risk, he said Arista’s double-digit growth target for the 2024 fiscal year shows prior concerns about the impact may have been too strong. Malik said Arista’s investor day in November could be a positive catalyst for the stock. Arista gained 2.1% in premarket trading following the upgrade. The stock is up more than 54% this year. ANET YTD mountain Arista Networks, year to date — CNBC’s Michael Bloom contributed to this report
