J.P. Morgan: Arista third-quarter earnings preview—growth opportunities expand in 2027, but cloud customer share remains under pressure

What are the expectations for third-quarter results and 2027 guidance?

Arista shares have fallen 14% since its second-quarter 2026 earnings report, matching the decline of its AI peers, while the S&P equipment index fell 2% over the same period. JPMorgan believes investors are focused on the sustainability of AI infrastructure spending, customer concentration, and the possibility that management may provide cautious guidance because of supply constraints.
The bank expects third-quarter results to beat expectations and fourth-quarter guidance to be raised. Its third-quarter revenue model is 3.3 billion dollars, below the consensus of 3.33 billion dollars and in line with company guidance of approximately 3.3 billion dollars; its earnings per share forecast of 1.07 dollars is below the consensus of 1.08 dollars.
The market consensus forecasts year-on-year revenue growth of 29% in 2027. Given Arista's historical practice of providing initial annual guidance generally close to consensus, JPMorgan believes an initial growth rate of around 30% could receive a neutral to positive response, while 35% or more could be better received.

In one scenario, JPMorgan combines hyperscale cloud customers, AI lab customers and other business to arrive at year-on-year revenue growth of more than 40% in 2027; the three contribute approximately 25, 15 and 3 percentage points, respectively. Other business is assumed to grow only 5% year on year.
AI labs are a key variable. Broadcom expects its AI lab customer to deploy 1 gigawatt of TPUs in 2026 and a further 5 gigawatts in 2027, with capital expenditure of approximately 20 billion to 30 billion dollars per gigawatt. JPMorgan assumes total spending of 125 billion dollars in 2027 and that Arista participates in some of the opportunities in cross-cluster networking and the core switching layer, estimating that the customer could contribute more than 2 billion dollars in revenue.
This scenario of more than 40% growth is above the bank's 2027 revenue forecast in its formal financial model: 16.703 billion dollars, up 32% year on year.

According to 650 Group, Arista's revenue share of the hyperscale cloud customer data-center Ethernet switch market fell from a peak of 38% in the second quarter of 2023 to 26% in the second quarter of 2026, partly because of its limited presence at Google and Amazon.
Even assuming this market share continues to decline, JPMorgan expects Arista's revenue from hyperscale cloud customers to grow more than 50% year on year in 2027, because it expects those customers' capital spending to rise 69% that year. Google's networking projects and Microsoft's scale-out interconnect collaboration could also provide additional opportunities.
The bank also expects Arista's serviceable market to exceed 340 billion dollars by 2030, above the company's previous forecast of 105 billion dollars for 2029. The new estimate reflects an upward revision to the data-center switch market forecast and is also expected to include the scale-out interconnect switch market for the first time; the larger market opportunity still needs to translate into actual share and revenue for the company.

JPMorgan is focused on the supply of the latest generation of switching chips, the impact of rising component costs on gross margin, and differences between margins on racks and switching trays in scale-out interconnect products.
The bank expects a full-year gross margin of 62.9% in 2026, down from 64.6% in 2025; it also cautions that improving white-box switch performance and customers shifting to proprietary software paired with commodity hardware could intensify competition.
JPMorgan maintains its Overweight rating on Arista and its 250 dollar price target for December 2027, based on a price-to-earnings multiple of 45 times its 2028 earnings-per-share estimate; that multiple is above the roughly 40-times two-year average cited by the bank.