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Why Wall Street says this networking stock could be the next big A.I. play

Chipmakers are far from the only big winners as demand related to artificial intelligence booms, and Wall Street analysts see strong tailwinds ahead for one networking stock: Arista Networks . Arista provides the infrastructure to support the big data AI requires. Shares have been on fire in 2023, jumping more than 25%. On Thursday, the stock popped 8%. ANET YTD mountain Arista Networks shares in 2023. Key to analysts’ thesis is the expectation for booming demand as hyperscalers and large-cap technology companies build out their infrastructure to tolerate stronger bandwidths. Workloads from graphics processing units that support many large language models and generative AI typically require stronger capacity. “With a larger exposure to hyperscalers than competitors, and a history of providing high performance networking equipment, Arista is in a prime position to benefit from the AI driven demand,” wrote Piper Sandler analyst James Fish in an April note to clients. The need for large data lakes to store, process and secure swaths of data should benefit Arista in the long haul, Needham said in a recent note. The firm expects AI tailwinds to boost the company’s longer-term growth between 5% and 10%. Needham also views Arista’s established relationships with hyperscalers including Meta Platforms and Microsoft as another advantage poised to benefit shares as these companies build new AI-focused technologies. The need to handle stronger AI workloads could boost the total addressable market for cloud networking to $24 billion by 2027, growing the market by a compound annual growth rate of 16% over the next four years, according to Morgan Stanley’s Meta Marshall. “ANET is the biggest beneficiary in our coverage given the exposure to multiple hyperscaler customers, and we estimate the TAM of their cloud opportunity could accelerate 600bps to 21% if they were to capture a similar opportunity in AI workloads to what they have traditionally had,” the analyst wrote in a March note. Evercore ISI’s Amit Daryanani added Arista to the firm’s tactical outperform list, saying investor focus going forward will likely concentrate on AI and workload expectations. He pegged the networking company’s AI potential at greater than $2 billion. — CNBC’s Michael Bloom contributed reporting.

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