Arista's Stock Hit As Analysts Cut Targets Over Tariff Uncertainty Despite Strong AI Demand

Core Viewpoint - Arista Networks' stock experienced a decline following price target reductions by analysts, despite reporting strong first-quarter earnings that exceeded expectations in both EPS and revenue. Financial Performance - Arista Networks reported a first-quarter 2025 EPS of $0.65, surpassing both Goldman Sachs analyst Michael Ng's estimate of $0.62 and the FactSet consensus of $0.59, with revenue reaching $2.00 billion, above the consensus of $1.97 billion and guidance of $1.93 billion to $1.97 billion [1][2] - The adjusted gross profit was $1.285 billion, slightly exceeding Ng's estimate of $1.277 billion and the consensus of $1.243 billion, with gross margins of 64.1% beating Ng's and consensus estimates of 63.0% and 63.2% respectively [3] - Adjusted EBIT was reported at $957 million, above Ng's estimate of $935 million and the consensus of $872 million, with margins of 47.8% exceeding Ng's and consensus estimates of 46.1% and 44.3% [3] AI Demand and Revenue Expectations - The company highlighted strong momentum in AI demand, projecting at least $750 million in back-end AI switching revenue in 2025 from its four major AI cluster projects, with 75% already in production [4] - Arista Networks anticipates a strong pull-through of front-end AI switching, although it acknowledged challenges in identifying specific products deployed in the front end [4] Tariff Impact and Guidance - The company estimated a potential gross tariff impact of 1.0% to 1.5% before mitigation efforts, primarily related to potential reciprocal tariffs in Malaysia/Vietnam [5] - Despite the positive performance in the first quarter, Arista Networks did not raise its full-year outlook for revenue, gross margins, or EBIT margins, citing a conservative approach due to uncertainties in the tariff environment [6] - For the second quarter of 2025, Arista Networks guided revenue of approximately $2.1 billion, adjusted gross margins of around 63%, and adjusted EBIT margins of about 46%, all exceeding consensus estimates [7] Full-Year Guidance - The company reiterated its full-year 2025 guidance, projecting revenue growth of 17%, adjusted gross margins of 60% to 62%, and adjusted EBIT margins of 43% to 44%, while maintaining its fiscal guidance unchanged due to tariff uncertainties [8]