What expectations did the 2027 guidance exceed?

  • Arista expects revenue growth of 38%–40% in 2027 in its first forecast for the year, above UBS’s previous estimate of 25%. Based on investor discussions, UBS judged that the market had expected initial guidance of about 30% before the earnings release.
  • The company raised its 2026 revenue guidance to approximately $13.3 billion, up 48% year over year. Given that the company’s actual revenue has exceeded its initial guidance on multiple occasions in the past, UBS believes investors may raise their 2027 growth expectations to at least 50%, implying revenue above $20 billion, higher than the company’s guidance midpoint of approximately $18.5 billion.
  • UBS raised its own 2027 revenue forecast by approximately 19%, from $15.81 billion to $18.7 billion, representing year-over-year growth of 40%. It raised its earnings-per-share forecast from $5.10 to $6.03.

How are AI networking and the campus business driving growth?

  • The company expects AI networking revenue to rise from approximately $3.5 billion in 2026 to $7 billion in 2027. UBS estimates that about two-thirds will come from scale-out, with the remainder mainly from scale-across for training; it expects the latter to grow faster in 2027.
  • UBS says its research indicates that Arista has secured scale-across projects at Microsoft and Meta and could win projects at Google and Amazon. The company believes the XPU deployment opportunity available to it in 2027 is approximately 10 gigawatts, spanning hyperscalers, emerging cloud service providers and enterprise customers.
  • Another source of growth is campus networking: the company expects revenue from the business to grow 60% to approximately $2 billion in 2027. UBS estimates this will contribute 5–6 percentage points to the company’s overall revenue growth, driven by enterprises upgrading networks as AI workflows increase and Arista pursuing market share.
  • By contrast, UBS expects the scale-up opportunity to be mainly in trials and pilots in 2027 and to contribute revenue only in 2028.

What do the reported results and order indicators show?

  • Third-quarter 2026 revenue was $3.66 billion, up 59% year over year and 10% above UBS’s forecast; earnings per share were $1.20, above the bank’s estimate of $1.07. The company’s fourth-quarter revenue guidance of $3.9 billion–$4 billion was also above UBS’s previous forecast of $3.58 billion.
  • Third-quarter gross margin was 64.0%, above UBS’s estimate of 63.0%, but the company still faces pressure from a rising share of AI infrastructure revenue and expected increases in chip and memory costs. UBS’s model projects a gross margin of 62.8% in 2027, below its 2026 forecast of 63.4%.
  • Non-cancellable purchase commitments rose from $9.7 billion at the end of the second quarter to $11.4 billion. The company uses these commitments to secure supply and enter into long-term agreements, including a new multiyear memory agreement. Meanwhile, third-quarter deferred revenue was $6.84 billion, up 46% year over year but flat sequentially; management said a large amount of deferred revenue was recognized as revenue during the quarter, while new orders kept the balance at its prior level.

Why did UBS raise its price target?

  • UBS maintained its Buy rating and raised its price target from $259 to $291. The bank raised its 2028 earnings-per-share forecast by 18% to $7.27 and rolled its valuation basis forward to 2028.
  • UBS also lowered its target price-to-earnings multiple from 46 times to 40 times, citing valuation multiple compression across the AI infrastructure ecosystem; the higher earnings forecast offset the impact of the lower multiple.