Bank of America: Arista’s third-quarter growth accelerates; company guides for 39% revenue growth in 2027

By how much did third-quarter results and 2027 guidance exceed expectations?

Arista’s revenue in the third quarter of 2026 was 3.658 billion dollars, up 58.5% year over year and above the market’s prior expectation of about 44%. The company expects fourth-quarter revenue to grow about 59% year over year, nearly 15 percentage points above market expectations at the time.
Management guided for revenue growth of 39% in 2027, compared with the market’s prior expectation of 28%. AI revenue is expected to double, while campus networking revenue is expected to grow 60%. On this basis, Bank of America raised its revenue forecast for 2027 from 16.177 billion dollars to 18.631 billion dollars.
Bank of America believes the guidance implies growth of only about 10% in the enterprise switching business; if this business performs better, overall growth has further upside.

The company expects to participate in the buildout of more than 10 gigawatts of new distributed AI computing capacity by the end of 2027, excluding existing data centers. Using assumptions from Dell’Oro, Bank of America estimates this corresponds to demand for switching equipment of about 15 billion dollars.
This provides a benchmark for management’s AI revenue expectations: an increase from 3.5 billion dollars in 2026 to 7 billion dollars in 2027. As large cloud service providers connect AI computing capacity across different data centers, cross-data-center interconnect expands Arista’s opportunities with customers such as Amazon and Google.
Bank of America expects cross-data-center interconnect to contribute more than one-third of Arista’s AI revenue in 2027; campus networking, meanwhile, benefits from an improved product mix and customer network upgrades.

Deferred revenue’s sequential growth rates over the last three quarters were 15%, 10% and negative 0.5%, respectively. Product deferred revenue fell by 86 million dollars in the third quarter of 2026, contrasting with rapid revenue growth.
Bank of America believes one possible reason is that more deployments have reached customer acceptance milestones and moved out of deferred revenue; after several years of substantial growth, some slowdown is also natural. Management expects deferred revenue, supported by new products and applications, to remain at or above the prior year’s level of 5.4 billion dollars.

The operating margin was 49.1% in the third quarter, and operating profit grew 60.1% year over year, slightly faster than revenue. Bank of America believes revenue scale and customer concentration support margins, while increased AI investment and a higher share of large cloud customers are offsetting factors.
Management expects operating margins of about 49% in both the fourth quarter of 2026 and 2027. Bank of America maintains its Buy rating and 240-dollar price target, while lowering the 2027 forecast P/E multiple used for the target from 49 times to 41 times to reflect valuation compression among peers.