Goldman has ‘growing optimism’ about this AI networking play, sees more than 15% upside

Goldman Sachs has more confidence that Arista Networks can beat Wall Street’s earnings expectations as its artificial intelligence networking business grows. Analyst Michael Ng has a buy rating on the stock and $356 price target. Ng’s price target reflects the potential for shares to advance 16.9% over Thursday’s close. Ng expects the network equipment company to record earnings per share of $7.61 and $8.91 in 2024 and 2025, respectively. Both are above respective consensus forecasts of analysts polled by FactSet, he noted, and stem from strong gains in the AI business. (By comparison, the average analyst anticipates $7.48 and $8.56 for the two years.) “We gain confidence in our above consensus ANET revised estimates in 2024/2025,” Ng told clients in a Thursday note, adding that he has “growing optimism” on the AI networking business in particular. One of the main reasons for that outlook, he said, is the growing capital expenditures from customers of the Cloud Titan business, including Meta , Microsoft and Oracle . That matters because continued spend on this business from clients can support Arista’s revenue. Meta’s AI Research SuperCluster provides another justification for his high expectations. The Facebook parent defined a clear role for Arista in generative AI infrastructure, Ng said. And shipment forecasts continue to rise for AI servers, which Ng said can also bode well for Arista. On top of that, there’s an increasing use of ethernet in AI networking, a good sign given the focus on networking equipment. In the same vein, Ng pointed to positive new data on its performance that came out during Broadcom ‘s AI Infrastructure Investment Meeting. ANET 1Y mountain Arista Networks, 1-year Ng’s call comes amid a strong period for Arista shares. The stock has rallied almost 30% in 2024 after nearly doubling in share price during the prior year.