J.P. Morgan: Arista guides for 2027 revenue growth of 38%–40%, driven by AI networking

How far did third-quarter results and subsequent guidance exceed expectations?

Third-quarter 2026 revenue rose 58.5% year on year to $3.658 billion, above JPMorgan’s forecast of $3.3 billion and the consensus estimate of $3.334 billion. Growth came mainly from AI and enterprise customers.
Quarterly earnings per share were $1.20, above the bank’s forecast of $1.07 and the consensus estimate of $1.08. Better-than-expected revenue and gross margin offset some of the impact of higher operating expenses.
The company guided for fourth-quarter revenue of $3.9 billion–$4 billion, with a midpoint of $3.95 billion, above the consensus estimate of $3.573 billion. On that basis, full-year revenue would be slightly above $13.3 billion, up approximately 48% year on year.

The company gave its first guidance for 2027 revenue growth of 38%–40% year on year, above the upper end of investor expectations of 35%, JPMorgan’s previous forecast of 32% and the consensus estimate of 30%. Using approximately $13.3 billion in 2026 as the base, the guidance midpoint implies approximately $18.5 billion.
The company aims to double AI networking revenue from $3.5 billion in 2026 to $7 billion in 2027. Campus networking revenue is expected to grow approximately 60% from $1.25 billion to $2 billion, while the remaining businesses are expected to achieve double-digit growth.
Existing scale-out networking continues to grow, while the inter-cluster connectivity business is also accelerating. The latter is expected to account for 30% of 2026 AI revenue, with its share potentially expanding in 2027. The scale-up business is scheduled for trials in 2027 and production in 2028; revenue recognition for some projects going live in 2027 may be deferred.
The customer base is also expanding: the company already has more than 100 Etherlink AI customers and expects 3 to 4 customers each to account for at least 10% of revenue in 2026, compared with two in 2025.

Third-quarter gross margin was 64%, above the consensus estimate of 63% but down 1.2 percentage points year on year: improved supply-chain efficiency offset only part of the increase in product costs.
Despite higher memory and chip prices, the company guided for a 2027 gross margin of 62%–64%, supported by supply-chain efficiency, multiyear supply agreements, price increases and a customer mix expanding beyond its largest cloud customers.
Deferred revenue declined quarter on quarter in the third quarter. Management said the amount converted to revenue during the quarter was higher than in the previous quarter, with a substantial amount of additions offsetting the decline, and reiterated that deferred revenue at the end of 2026 would be higher than at the end of 2025.

JPMorgan raised its 2027 adjusted earnings-per-share forecast from $5.45 to $6.05, maintained its overweight rating and increased its price target for December 2027 from $250 to $270.
The bank’s price target applies a price-to-earnings multiple of 45 times forecast 2028 earnings per share, above the two-year average of approximately 40 times and the long-term average of approximately 30 times. The premium is based on growth prospects from AI data-center construction and the enterprise market.
On competition, the bank noted that Arista’s earnings forecast and competitive position could come under pressure if white-box switches with continually improving performance enter less performance-demanding parts of networks more quickly, or if customers shift faster to their own software paired with generic hardware.