Arista Networks Inc: 5G Stock Up 48% YoY & Poised for Greater Growth

Arista Stock Bullish on Q1 Earnings & Revenue Beat

There are many different types of 5G stocks: semiconductor, real estate, equipment, infrastructure, and exchange-traded fund (ETF).

If history is any indicator, so-called pick-and-shovel stocks tend to do the best over the long run. In the case of 5G, pick-and-shovel companies include the equipment and infrastructure companies that provide the hardware that’s essential for telecommunications providers to reach businesses and consumers.

One of the best 5G infrastructure companies is Arista Networks Inc (NYSE:ANET).

The power of pick-and-shovel stocks shouldn’t be ignored. During the Klondike gold rush, the people who made the most money weren’t necessarily the miners, but the shopkeepers who sold picks, shovels, and pans. The same holds true today.

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For example, Alphabet Inc (NASDAQ:GOOG) provides the world’s most popular search engine, “Google,” while Dell Technologies Inc (NYSE:DELL) and HP Inc (NYSE:HP) are two of the top-selling computer brands. They’re big companies that people tout as being potential ten-baggers.

But on the pick-and-shovel side, there are companies like Logitech International SA (NASDAQ:LOGI), a maker of screens, mice, and keyboards.

Over the last five years, Logitech stock has trounced the stocks of the aforementioned three big companies, returning 647%. Alphabet stock was a distant second, at 205%.

Chart courtesy of StockCharts.com

The legal cannabis industry, which has seen many investors make a lot of money, is another good example of where a pick-and-shovel stock has been the biggest winner.

Trulieve Cannabis Corp (CNSX:TRUL, OTCMKTS:TCNNF), Cresco Labs Inc (CNSX:CL, OTCMKTS:CRLBF), and Curaleaf Holdings Inc (CNSX:CURA, OTCMKTS:CURLF) are three of the biggest multistate marijuana operators. And their share prices have all done well over the last year.

But their gains pale in comparison to what GrowGeneration Corp (NASDAQ:GRWG), the largest hydroponics supplier in the U.S., has achieved, as the following chart shows.

Chart courtesy of StockCharts.com

The point is, pick-and-shovel companies are the foundation upon which most sectors and industries thrive. In the 5G sector, Arista Networks Inc is one of those companies.

As you can see in the following chart, ANET stock has outpaced the biggest names in the 5G space. The chart is a little crowded, but you can see that, over the last five years, Arista stock has posted a total return of 371.3%

Chart courtesy of StockCharts.com

Arista has far outpaced well-known 5G stocks like QUALCOMM, Inc. (NASDAQ:QCOM), Digital Realty Trust, Inc. (NYSE:DLR), Skyworks Solutions Inc (NASDAQ:SWKS), Corning Incorporated (NYSE:GLW), Ciena Corporation (NYSE:CIEN), and American Tower Corp (NYSE:AMT).

They’re all great 5G stocks, but investors in ANET stock have fared better. In addition to strong five-year gains, Arista stock is up 48% year-over-year, 16.5% over the last six months, and nearly 10% year-to-date.

It’s impossible to say whether that trend will continue, but it’s safe to say that 5G equipment and infrastructure companies like Arista Networks Inc will be indispensable to the successful rollout and adoption of 5G technology.

ANET Stock Overview

Arista Networks provides cognitive cloud networking solutions to large data centers, Internet companies, and cloud service providers. Arista’s platforms range in Ethernet speeds from 10 to 400 gigabits per second. (Source: “Corporate Profile,” Arista Networks Inc, last accessed May 14, 2021.)

The company’s cloud networking solutions consist of its “Extensible Operating System,” a set of network applications, and its Ethernet switching and routing platforms.

The programmability of Extensible Operating System has allowed Arista Networks Inc to create a set of software applications that address the requirements of cloud networking, including workflow automation, network visibility, and analytics.

The system has also allowed the company to integrate with a range of third-party applications for virtualization, management, automation, orchestration, and network services.

Arista Networks Inc’s 7,000+ customers include Fortune 500 global companies in sectors such as cloud titans, enterprise, financials, and specialty cloud service providers. 

Arista Began 2021 “With a Flying Start”

For the first quarter of 2021, Arista announced that its revenue increased 27.6% year-over-year and 2.9% sequentially to $667.6 million. (Source: “Arista Networks, Inc. Reports First Quarter 2021 Financial Results,” Arista Networks Inc, May 4, 2021.)

The company’s first-quarter gross margin was 63.7%, compared to 64.7% in the first quarter of 2020 and 63.9% in the fourth quarter of 2020. Its adjusted gross margin was 64.7%, compared to 65.6% in the same period of the previous year and 65.0% in the previous quarter.

Arista Networks Inc reported first-quarter net income of $180.4 million ($2.27 per share), a 30.5% increase over the $138.4 million ($1.73 per share) in the same period of the previous year.

Its first-quarter 2021 adjusted net income was $198.8 million ($2.50 per share), a 23.0% increase over the first-quarter 2020 adjusted net income of $161.7 million ($2.02 per share).

“Arista begins the 2021 year with a flying start,” said Jayshree Ullal, president and CEO. “Clearly, the focus on our cognitive cloud networking suite is resonating with customers across diverse data sets and applications.” (Source: Ibid.)

Business Outlook

For the second quarter of 2021, Arista Networks Inc expects to report:

  • Revenue between $675.0 and $695.0 million, versus Q2 2020 revenue of $540.6 million
  • Adjusted gross margin between 63% and 65%, compared to $64.7% in Q2 2020
  • Adjusted operating margin of approximately 37%, versus 38.1% in Q2 2020

Analyst Take

Arista Networks Inc is an excellent 5G data center and Internet infrastructure company. A top equipment provider for data centers, it’s well positioned to take advantage of the boom in mobile 5G data.

Despite economic headwinds in 2020, Arista reported solid financial results throughout the year, especially strong third- and fourth-quarter results. That momentum has carried into 2021, with strong first-quarter results and a solid outlook.  

That’s all good news for Arista stock investors.