What Arista Networks (ANET) Said on Its Q3 Earnings Call

Key Points

• Q3 revenue surged 58.5% year over year to $3.66 billion, while diluted EPS rose 55.8% to $1.20. Arista raised its 2026 revenue outlook to about $13.3 billion, up 48% annually.
• Management expects 2027 revenue growth of 38% to 40%, to roughly $18.5 billion at the midpoint, and projects its AI fabrics business will double to about $7 billion.
• Arista expects Q4 revenue of $3.9 billion to $4 billion. It is increasing inventory and supplier commitments to prepare for customer demand and secure components for AI deployments and new products.

Arista Networks NYSE: ANET reported third-quarter 2026 revenue of $3.66 billion, up 58.5% from a year earlier, marking what Chief Executive Officer Jayshree Ullal described as the company’s largest year-over-year revenue growth since becoming a public company.

The networking company raised its full-year revenue outlook for the fourth time in 2026, now expecting approximately $13.3 billion in revenue, representing 48% annual growth. Management also issued an initial 2027 outlook calling for revenue growth of 38% to 40%, or about $18.5 billion at the midpoint.

Quarterly Financial Results

Chief Financial Officer Chantelle Breithaupt said third-quarter revenue exceeded the company’s prior guidance of $3.3 billion, driven by continued strength from AI and enterprise customers. International revenue was $682.5 million, or 18.6% of total revenue, compared with 23% in the preceding quarter, reflecting a geographic mix shift among large global customers.

Arista reported a gross margin of 64%, compared with 65.2% a year earlier and 63.4% in the prior quarter. Operating income was $1.8 billion, or 49.1% of revenue, while net income totaled $1.53 billion, or 41.9% of revenue.

Diluted earnings per share were $1.20, up 55.8% from $0.77 in the prior-year period. The company ended the quarter with $14.4 billion in cash, cash equivalents and marketable securities, up from $13.3 billion at the end of the second quarter.

• Cash from operations: approximately $1.2 billion
• Inventory: $3.2 billion, up from $2.5 billion sequentially
• Purchase commitments: $11.4 billion, up from $9.7 billion in the second quarter
• Deferred revenue: approximately $6.8 billion, compared with $6.9 billion in the prior quarter
• Capital expenditures: $100.7 million

Breithaupt said inventory and purchase commitments have risen as Arista invests ahead of customer demand and secures components for new products and AI deployments. She said purchase commitments include chip-related spending and a multiyear memory agreement.

AI Networking Drives Growth Outlook

Ullal said Arista has surpassed 100 Etherlink customers as demand grows for networking infrastructure supporting AI training and inference workloads. The company expects more than 10 gigawatts of deployments across more than 10 types of compute accelerators by the end of 2027.

Arista supports what management described as three AI-fabric categories: scale-out, scale-across and scale-up. Scale-up deployments are expected to remain in trial stages during 2027, with production anticipated in 2028. Ullal said scale-across represented roughly 30% of the company’s AI-related mix in 2026 and could account for a larger share in 2027, while scale-out has represented the larger portion of demand.

The company forecast that its AI fabrics business will double to approximately $7 billion in 2027. Its cognitive campus business is expected to grow about 60% to approximately $2 billion.

Management said the company’s increased research and development spending reflects investments in liquid cooling, high-radix switching, AI software and work with hyperscale customers. R&D expense totaled $408.5 million, or 11.2% of revenue, compared with $278.1 million in the prior quarter. Breithaupt said the company continues to view R&D spending in a range of 9% to 11% of revenue.

Enterprise, Security and Campus Expansion

President and Chief Operating Officer Todd Nightingale said enterprise demand has been supported by customers treating campus and branch networks as mission-critical infrastructure, with greater attention to security updates, reliability and uptime.

He cited recent customer deployments involving an Asian web services company, hospital systems and a resort and casino operator. In those cases, Arista said customers selected its platforms for data-center, campus and security-related deployments, including network segmentation, automation and visibility through its CloudVision platform.

President and Chief Technology Officer Ken Duda said Arista is also expanding its AVA autonomous virtual assistant, which uses real-time network data for monitoring, troubleshooting and root-cause analysis. AVA is available as an alpha feature for customer trials within CloudVision, and Duda said the company is still developing its pricing model.

On security, Duda said Arista has been working with Anthropic, Google and OpenAI, among others, to incorporate AI-enabled security capabilities into its software security process. He also highlighted the company’s Zero Trust Networking offerings, including macro-segmentation, network detection and response, and link and tunnel encryption.

Fourth-Quarter and 2027 Guidance

For the fourth quarter, Arista expects revenue between $3.9 billion and $4 billion. The company forecast gross margin of 63% to 64%, operating margin of 48% to 49%, and diluted earnings per share of $1.26 to $1.30 on approximately 1.28 billion diluted shares. Its expected effective tax rate is about 21%.

For 2027, management projected gross margin of 62% to 64%, operating margin of approximately 49%, and an effective tax rate of approximately 21%.

Breithaupt said management has confidence in its supply-chain position based on internal execution and supplier agreements, though she noted Arista generally has visibility for about two quarters and relies on planning assumptions for later periods. Nightingale added that the company has made long-term arrangements to secure supply across silicon, printed circuit board capacity and memory.

About Arista Networks (NYSE:ANET)

Arista Networks, Inc develops and sells cloud networking solutions for data centers, cloud service providers, enterprises and specialized computing environments. The company's products are designed to support high-performance, scalable and automated networks used for cloud computing, artificial intelligence, data analytics and other demanding applications.

Arista's portfolio includes data center and campus switches, routing platforms, wireless networking products, network operating software and network management tools.

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