Arista(US:ANET) SINOLINK SECURITIES·2024-07-24 02:31Investment Rating - The report initiates coverage with a "Buy" rating for the company, setting a target price of $460 based on a 50X PE for 2025 [3]. Core Views - The company is a leading provider of high-speed Ethernet switches, benefiting from the AI trend and the increasing demand for Ethernet in data centers. The Ethernet market is projected to grow from $16 billion in 2024 to over $21 billion by 2028 [3][19]. - The company's self-developed EOS operating system provides a competitive edge, enabling rapid integration and deployment for data center clients, which is crucial in the evolving landscape of AI and cloud computing [3][19]. - The company has significantly outperformed Cisco in revenue growth and market share, particularly in the high-speed Ethernet switch market, where it holds a 45% market share by port count, double that of Cisco [3][19]. Summary by Sections Investment Logic - The company is positioned to benefit from the increasing adoption of Ethernet in AI applications, as Ethernet offers advantages in port speed and cable bandwidth over Infiniband [3][10]. - The global data center Ethernet switch market is expected to reach approximately $16 billion in 2024, with a projected growth to over $21 billion by 2028 [3][19]. - The company has shown impressive revenue growth rates of 48.6% and 33.8% in 2022 and 2023, respectively, with a forecasted growth of 12% to 14% in 2024 [3][5]. Profit Forecast and Valuation - The company’s net profit is projected to be $2.48 billion in 2025, with a compound annual growth rate (CAGR) of approximately 16.5% from 2024 to 2026 [5]. - The report highlights a significant increase in the cost of network communication hardware in GPU clusters, which is expected to rise from 20% to 40% by the end of 2024 [3][10]. - The company’s revenue is expected to grow from $4.38 billion in 2024 to $9.05 billion in 2026, reflecting a steady increase in demand for high-speed switches [5]. Competitive Positioning - The EOS operating system allows for effective hardware-software decoupling, enhancing the company’s market share in high-speed switches [3][19]. - The company has established a strong ecosystem around its EOS platform, which is more flexible and programmable compared to competitors, leading to higher profitability [3][19]. - The company’s market share in the data center Ethernet switch market has increased significantly, with a 45% share in 2023, indicating strong competitive positioning against Cisco [3][19].