Overview
Since the Report − 1.8%
Revenue grew 37.7% year over year, EPS beat the estimate by 13.0%; the stock rose 11.8% in its first reaction.
- RevenueQ2
- $3.04B
- ▲ 37.7% YoY
- EPSAdjusted
- $1.02
- 13% Above Expectations
Verdict
BUYArista posted its first $3 billion quarter: revenue rose 37.7% to $3.04 billion, adjusted earnings beat by 13%, and 2026 revenue guidance was raised a third time, to $12.6 billion. The stock popped roughly 12% after hours to an all-time high, then closed the next session up only 3.6%, because the shares had already climbed 63% over the prior year. What matters next is where gross margin goes from 63.4% and how few cloud customers the growth still rests on.
Close on Report DayAug 4
$192.32▲ 11.8%Report-Day Move
- Market Cap(Today)
- ≈ $238 B
- 1Y Return(At Report)
- + 63%
- P/E(At Today's Price · $3.46 · Trailing 12M)
- 54.6
- PEG(Next-year Consensus)
- 2.25
- Net Margin(Trailing 12M)
- 38.4%
Earnings Summary
In 30 Seconds- Revenue rose 37.7% year over year to $3.04B, and adjusted EPS of $1.02 beat expectations by about 13%.
- 2026 revenue guidance was raised for the third time this year to $12.6B, but adjusted gross margin narrowed 2.2 points year over year.
- The stock jumped about 12% after hours, but closed the next session up only 3.6% because the price already reflected a lot.
The Numbers
Adjusted Gross Margin
63.4%
Down 2.2 Pts YoY
Adjusted Operating Margin
49.9%
Up 1.1 Pts YoY
FY2026 Revenue Guidance
~$12.6B
3rd Raise This Year
Deferred Revenue
$6.9B
$6.2B Prior Quarter
Quarterly Revenue ($ Billion)
2.21
Q2 2025 · $2.21 B
2.31
Q3 2025 · $2.31 B · QoQ + 4.7%
2.49
Q4 2025 · $2.49 B · QoQ + 7.8%
2.71
Q1 2026 · $2.71 B · QoQ + 8.9%
3.04
Q2 2026 · $3.04 B · QoQ + 12.1% · YoY + 37.7%
Guidance ~$3.3B
Q3 2026 · Guidance ~$3.3B · QoQ + 8.7% · YoY + 43.0%
- Q2 2025
- Q3 2025
- Q4 2025
- Q1 2026
- Q2 2026
- Q3 2026
Q3 2026 Company Guidance
- Revenue3.3 billion
Midpoint $3.3B · Market Expectation $2.95B11.9% Above Estimate ▲
- Adjusted EPS1.06 – 1.08 $1.06 $1.08 $1.06 – 1.08 $
Midpoint $1.07 · Market Expectation $0.92Even Low End 15.2% Above Estimate ▲
- Adjusted Gross Margin63%
Q2 Actual 63.4% · 65.6% a Year AgoMargin Pressure Persists · 0.4 pt Contraction ▼
- Adjusted Operating Margin48% – 49%48%49%48% – 49%
Q2 Actual 49.9%Slight Step Down · 1.4 pt Contraction ▼
- FY2026 Revenue12.6 billion
May Guide $11.5B · 3rd Raise This YearRaised 9.6% ▲
How to Read the Chart
The blue band is the company's low-high range; its length shows how much room the company left itself. The black triangle and the line beneath it mark where the market expected, and the notch in the band is the range's midpoint. The triangle appears only where a market expectation is known. When the company gave a single number rather than a range and no market expectation is known, that row gets no band at all: there is no length to measure and no position to compare. Axis is ±16% around the midpoint.
Company-Specific Metrics
Product Revenue
$2.61 B
▲ 38.8% YoYPress Release
Service Revenue
$431 M
▲ 31.3% YoYPress Release
First-Half Operating Cash Flow
$2.78 B
▲ 50.7% YoYPress Release
Inventories
$2.54 B
Press Release
Metrics come only from the company's own filings; each one names the document it was taken from.
“As we deliver our first $3 billion quarter in Q2 2026, it is clear that our Arista 2.0 platform strategy is compelling. Customers see networking as the central nervous system for infrastructure from the client to campus to data and AI centers.”
- Arista 2.0 Platform Strategy
- Etherlink AI Networking Momentum
- Supply Constraints Through 2028
Summary and Review
Summary
Arista Networks reported second-quarter results after the close on August 4. Revenue was $3.04 billion, up 37.7%, the first quarter above $3 billion in its 22-year history. Adjusted earnings of $1.02 per share came in about 13% above the $0.90 Market Expectation. Adjusted operating margin rose 1.1 points to 49.9%; adjusted gross margin slipped from 65.6% to 63.4%. Full-year revenue guidance rose to $12.6 billion, the third raise this year.
The stock jumped about 12% after hours to a record and opened August 5 above $210, a gap above 10%. It closed at $197.31, up just 3.6%, then fell 2.5% on August 6 to $192.32 — almost back to the $190.51 pre-earnings close. The give-back reflected how much the price already carried, not a weak quarter. The shares had gained 63% in a year. Investors focused on gross margin and on how few customers the growth rests on.
The quarter is strong: revenue and earnings beat; guidance rose a third time. Deferred revenue climbed from $6.2 billion to $6.9 billion. Two reservations remain. Gross margin narrowed 2.2 points; management expects memory and silicon costs to keep pressing. Much of revenue still depends on a handful of cloud customers. Even so, the growth, the wider operating margin and the size of the raise outweigh them. We rate the quarter strong; whether the price is right is a valuation question.
Full Review
The first $3 billion quarter came from AI fabrics.
Revenue of $3.04 billion was up 37.7% from $2.21 billion a year earlier and 12.1% from the previous quarter. The engine is the Ethernet fabric behind AI clusters: the company's Etherlink family has now passed 100 cumulative customers. Management is targeting at least $3.5 billion of AI fabrics revenue in 2026, with a separate campus goal of at least $1.25 billion. On the call, Jayshree Ullal framed those numbers as a floor rather than a ceiling: "The question is not whether it will go up. The question is what is that number?" International revenue reached $697.8 million, or 23% of the total, showing the growth is not coming from a few U.S. data centers alone. Deferred revenue rose to $6.9 billion; a backlog growing faster than revenue usually means demand is ahead of supply.
Guidance went up, gross margin came down.
Third-quarter revenue guidance of roughly $3.3 billion is about 12% above the $2.95 billion Market Expectation. The earnings midpoint of $1.07 compares with an expected $0.92. The full-year outlook was lifted to $12.6 billion, or 40% growth — $1.1 billion above the May guide and the third increase this year. Management also flagged limited visibility: planning rests on about two quarters of view and on parts availability. Adjusted gross margin was 63.4%: above the prior quarter's 62.4%, but 2.2 points below last year's 65.6%. Tariff refunds added 20 to 30 basis points, so the underlying margin is slightly weaker. Guidance calls for about 63% in the third quarter and 62% to 64% for the year. Two forces: a mix tilted toward lower-margin cloud buyers, and rising memory and silicon costs. Operating margin still expanded to 49.9%, because revenue grows far faster than expenses.
Leaning on a narrow customer base is a structural fragility.
Customer concentration is Arista's best-known weak point. The company has for years disclosed Microsoft and Meta as customers each accounting for more than 10% of revenue. Bank of America analysts estimate Microsoft alone made up close to a quarter of 2025 revenue. On this call management said it expects both to stay above the 10% threshold and that one or two additional customers could cross it. New large accounts dilute the concentration over time, but they do not change today's picture. A delay in the capital spending plans of a few companies could dent an Arista quarter on its own. A second factor compounds it: acceptance clauses in some large contracts tie revenue recognition to a customer sign-off. That makes quarterly revenue lumpy and is part of why deferred revenue swelled to $6.9 billion. It is a good illustration of why diversification cannot be solved inside a single stock.
Supply chain and regulation stay on the table through 2028.
Ullal was blunt about supply: "The industry is going to have a two-year problem. I don't think we get out of it as an industry till 2028." That describes a period where shipping, not booking, is the bottleneck. The company is positioning accordingly: inventory rose to $2.5 billion and purchase commitments to $9.7 billion. A regulatory headline landed the same week. According to a draft reported by Reuters on August 4, the FCC plans to stop approving new Chinese-made optical transceiver models. The measure is expected to target the 800G-to-1.6T transition rather than already-installed equipment. That transition is exactly where Arista's 2027 product cycle sits. Our piece on the FCC ban on Chinese optical transceivers covers the detail. Arista does not make transceivers, but their price and availability feed straight into its delivery schedule and cost base.
The price had already absorbed the good news.
The stock rose roughly 12% after hours to a record, opened August 5 at $210.19, touched $214.89 intraday and closed at $197.31. The next day it slipped 2.5% to $192.32, against a $190.51 pre-earnings close. A near-perfect quarter and one of the largest guidance raises in company history left almost no mark after two days. The reason is simple: the shares were up 63% in a year, carried a market capitalization above $240 billion and entered earnings week on a three-day winning run. Needham lifted its target from $200 to $260 and Bank of America from $200 to $240. The average 12-month target now sits near $236, about 23% above the current price. The lesson: a good quarter no longer lifts a stock automatically; the bar can sit above the company's own guidance. The line to watch in November: revenue clearing $3.3 billion and gross margin holding near 63%.
Looking Ahead
Strengths and Risks
6 Strengths · 6 RisksStrengths
6- The first $3 billion quarter in company historyRevenue of $3.04 billion, up 37.7% year over year and roughly 7% above the Market Expectation.
- Full-year revenue guidance raised to $12.6 billion — $1.1 billion above the May guide and the third increase this year.
- Adjusted operating margin expanded to 49.9%, 1.1 points better than a year ago, as revenue outgrew the expense lines.
- Deferred revenue climbed from $6.2 billion to $6.9 billionThe backlog is growing faster than reported revenue.
- A fortress balance sheet$2.29 billion in cash plus $11.05 billion in marketable securities, $13.3 billion of liquid assets with no debt.
- International revenue reached $697.8 million, or 23% of the total — growth is not confined to U.S. data centers.
Risks
6- Customer concentration is structuralMicrosoft and Meta each exceed 10% of revenue, and Bank of America estimates Microsoft was nearly a quarter of 2025 revenue.
- Adjusted gross margin narrowed 2.2 points to 63.4% despite 20-30 basis points of tariff-refund help; rising memory and silicon costs keep the pressure on.
- Ullal says the industry's supply bottleneck runs through 2028İnventory rose to $2.5 billion and purchase commitments to $9.7 billion, a burden if demand cools.
- The FCC's draft on new Chinese-made optical transceivers lands mid-way through the 800G-to-1.6T transition; Western alternatives lack capacity and price increases are expected.
- The 1.6T product (7060X-E7) is in trials at a handful of large customers, volume production slips to 2027, and visibility spans only about two quarters.
- The stock is up 63% over a year with a market capitalization above $240 billionEven a near-perfect quarter left no mark after two sessions.
What to Watch
5- Early November 2026Q3 2026 results: guidance calls for about $3.3 billion in revenue, 63% gross margin, 48-49% operating margin and $1.06-$1.08 per share.
- End of 2026Beyond the $12.6 billion revenue goal, watch the sub-targets: at least $3.5 billion in AI fabrics and $1.25 billion in campus.
- During 2026If the FCC's Chinese-transceiver draft covers only new models, the impact shifts to 2027; a broader scope hits the supply chain.
- Second half of 2026Trials of the 1.6T-capable 7060X-E7 platform at a single-digit number of large customers; their outcome sets 2027 production volumes.
- February 2027Q4 2026 results and, most likely, the first 2027 outlook: the first official signal on how AI infrastructure spending trends next year.
Upcoming Earnings
To Understand This