Goldman Sachs: Arista beats expectations in the third quarter; company expects AI revenue to double in 2027

Where did the third-quarter beat come from?

Arista’s third-quarter revenue was 3.658 billion dollars, up 58.5% year over year, above Goldman Sachs’ estimate of 3.483 billion dollars and FactSet consensus of 3.335 billion dollars. AI networking demand and enterprise campus deployments both supported growth.
Earnings per share were 1.20 dollars, above the market consensus of 1.08 dollars; adjusted gross margin was 64.0%, above the consensus of 62.7%. However, services revenue was 468 million dollars, below the consensus of 477 million dollars.
The company’s fourth-quarter revenue guidance was 3.9 billion–4 billion dollars, above the consensus estimate of 3.57 billion dollars cited in the report; non-GAAP EPS guidance was 1.26–1.30 dollars, also above the consensus of 1.15 dollars.

The company expects total revenue to grow 38%–40% year over year in 2027, with the midpoint of guidance at about 18.5 billion dollars. Its AI networking revenue target is about 7 billion dollars, double the 2026 level, while its campus business revenue target is about 2 billion dollars, up approximately 60%.
Goldman Sachs believes the coexistence of multiple accelerators and different data-center network architectures is increasing customer demand for specialized networking equipment and a unified network operating system. The company said it has more than 100 Etherlink customers and expects AI deployments covering more than 10 types of accelerators to exceed 10 gigawatts by the end of 2027.
Enterprise customers are also upgrading campus networks to address cybersecurity threats. Management believes that the reliability and security features of Arista’s EOS network operating system can help the company replace traditional vendors.

Management said scale-across networks, which connect distributed computing environments, currently account for about 30% of the AI business. This share is expected to increase in 2027 as large cloud customers place greater emphasis on distributed training and inference.
The in-rack scale-up Ethernet solution is scheduled for trials early in 2027. Management expects production deployments to become an important growth driver in 2028.
To support expansion in 2027, the company’s purchase commitments rose to 11.4 billion dollars, an increase of 1.7 billion dollars sequentially, to secure multiyear supplies of memory and chips. Meanwhile, deferred revenue was about 6.8 billion dollars, slightly lower sequentially, and Bookings growth was also slowing—potential points of contention flagged by Goldman Sachs.
Customer concentration remains high: Meta and Microsoft accounted for 16% and 26%, respectively, of Arista’s total revenue in 2025. Goldman Sachs also cited a slowdown in cloud capital expenditure and competition in networking equipment as downside risks.

The company expects a non-GAAP gross margin of 62%–64% in 2027 and a non-GAAP operating margin of about 49%. Goldman Sachs raised its 2027 revenue forecast from 17.213 billion dollars to 18.707 billion dollars, and its recurring EPS forecast from 5.73 dollars to 6.13 dollars.
Goldman Sachs maintained its Buy rating and raised its 12-month price target from 225 dollars to 240 dollars; the target valuation multiple was lowered from 36x to 33x due to a contraction in peer valuations.