Until recently, a lot of people had probably never even heard of Arista Networks (ANET -1.01%). Now, it's one of the hottest tickers on the market. The network company has seen significant success in its business of routers, network switches, and similar types of hardware devices, and Wall Street has taken notice. The stock has beaten the S&P 500 handsomely, and the story seems primed to keep going.

There are a lot of tech stocks out there, and a ton of them have seen big gains in the short term. What I like about Arista is the fact that networking and cloud computing are integral to modern technologies. This is an industry that isn't going away.

A very useful product for the modern world

Arista Networks is basically involved in developing networks for large enterprises through the use of cloud computing, routers, data centers, and other digital resources. These products are very applicable to the modern world of tech. Networks are the backbone of infrastructure for many companies, and the ever increasing use of cloud computing also helps the situation.

For those of you who don't know what any of that is, fear not. You're not alone. What we can all understand though, is the financial success related to their sector. The stock has delivered returns of nearly 100% over the last year compared to an S&P 500 return of around 27%. More broadly, Arista has produced stock gains of a whopping 817% over the last five years and is perfectly positioned within the industry.

These are products that are extremely useful for modern business and modern personal computing, and Arista is positioned in a perfect spot within the industry.

That usefulness is leading to a pretty great financial performance

Arista Networks has had three great years in a row, creating consecutive revenue growth rates of 27% in 2021, 48.6% in 2022, and 33.7% in 2023. Congruently, earnings have had significant growth rates as well. In fiscal 2021, diluted earnings per share increased by 31.94%, 60.86% in 2022, and 54.01% in 2023. 2024 appears to be shaping up into a pretty strong year as well. Revenues are up 17.43% through the first three quarters of the year, with diluted earnings per share up 37.6% to $6.41 per share.

One of the things I really like about Arista is that it's a stock that can be looked at in terms of net income. So many tech stocks trade at high multiples to earnings or don't have earnings at all. But Arista Networks has developed to the point of creating meaningful earnings for shareholders. The company finished the first nine months of the year with net income of $2.05 billion. That's roughly a 39% increase from the first nine months of the year prior.

Looking ahead and valuation

I don't think the party's over. Networks don't go out of style in the business world, and the segment is evolving. Routers, switches, and other types of hardware are all in Arista's wheelhouse, and cloud-based networking is an ever-expanding business. Arista seems primed to continue benefiting from it.

Fourth-quarter guidance is calling for revenues of between $1.85 billion and $1.90 billion, with non-GAAP gross margins of 63% to 64%. On the low end, that would give Arista Networks full-year revenues of $6.92 billion and full-year revenue growth of 36.49% compared to 2023 results of $5.07 billion.

Analyst estimates are calling for full-year earnings of $1.87 per share, giving the stock a forward price-to-earnings (P/E) ratio of roughly 64 times earnings. Given the growth being demonstrated here and the fact that the company has a trend of earnings surprises to the upside, I think it's a reasonable valuation when you consider some of the valuations other tech stocks are garnering. As Danny Vena points out, the company's announced stock split is further evidence of success, as the stock has run so high over the last year.

All things considered, I view Arista Networks as a strong buy in 2025.