It’s no secret data center spending is through the roof.

Last year, the largest data center hyperscalers spent a combined $380 billion building new infrastructure. This year, that number is expected to climb to over $600 billion.

That spending covers everything from constructing facilities to purchasing servers.

However, none of that equipment works without the systems that connect it all together. And that’s where Arista Networks (ANET) comes in.

Arista builds the networking equipment that moves data across the Internet. Its switches and routers connect thousands of servers inside a single data center.

Every time a user runs a search, loads a video, or accesses cloud data. Arista’s products ensure that information moves quickly and reliably.

Its hardware is built for scale. And its software ensures those networks stay operational even when components fail.

While hardware drives much of Arista’s revenue, its real advantage comes from its software platforms.

Arista’s Extensible Operating System (“EOS”) powers its networking equipment. CloudVision allows operators to monitor and manage entire data center networks in real time. Together, these systems create a highly reliable and scalable platform.

Now, the rise of AI is pushing demand even further.

Training AI models requires thousands of processors working together as a single system.

That creates massive data flows between chips, servers, and storage, far beyond what traditional networks were designed to handle.

Arista’s answer is Etherlink, a new product line built specifically for AI workloads.

It enables faster switching, greater bandwidth, and the ability to connect tens of thousands of processors at once.

These systems are simpler, more efficient, and more reliable than traditional solutions. And as companies build data centers dedicated entirely to AI, that performance advantage becomes critical.

Arista’s positioning has translated directly into strong financial performance.

Over the past five years, the company has generated Uniform return on assets (“ROA”) between 39% and 50%, placing it well above the corporate average. At the same time, it has delivered more than 20% annual Uniform asset growth, reflecting sustained demand for its products.

Despite this, the stock trades at 36x Uniform P/E, above the market average of 20x. But given Arista’s growth rate, profitability, and strategic importance in AI infrastructure, that valuation appears justified.

As long as data center spending remains elevated and Arista continues to be a preferred supplier of high-performance networking solutions, the company is well positioned to outperform.

Best regards,

Joel Litman & Rob Spivey
Chief Investment Officer &
Director of Research
at Valens Research

Today’s analysis highlights the same insights we share with our FA Alpha Members. If you want to an get in-depth analysis of market trends and uncover undervalued stocks, become an FA Alpha Member today.