Financial Data and Key Metrics Changes - Total revenues for Q3 2025 were $2.3 billion, representing a year-over-year increase of 27.5%, exceeding guidance of $2.25 billion [21] - Non-GAAP gross margin was 65.2%, down from 65.6% in the previous quarter but up from 64.6% in the same quarter last year [21] - Operating income for the quarter was $1.12 billion, or 48.6% of revenue, with net income of $962.3 million, equating to 41.7% of revenue [21][22] - Diluted earnings per share increased by 25% year-over-year to $0.75 [22] Business Line Data and Key Metrics Changes - Software and services contributed approximately 18.7% of total revenue [7] - International revenues accounted for 20.2% of total revenue, down from 21.8% in the prior quarter [21] - R&D spending was $251.4 million, or 10.9% of revenue, up from $243.3 million in the last quarter [22] Market Data and Key Metrics Changes - The Americas region generated almost 80% of total revenue, while international markets contributed approximately 20% [7] - The total deferred revenue balance increased to $4.7 billion, up from $4.1 billion in Q2 [24] Company Strategy and Development Direction - The company aims for $1.5 billion in AI-related revenue for 2025, with a new target of $10.65 billion in total revenue for 2026, representing a 20% growth [8][27] - Arista is focusing on building a modern AI stack, emphasizing partnerships with major players like NVIDIA, AMD, and OpenAI [8][19] - The company is committed to investing in technology and customer relationships to drive growth in cloud and AI markets [20] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in demand despite shipment variability due to supply chain constraints [32][49] - The outlook for Q4 2025 includes revenue guidance of $2.3-$2.4 billion and continued growth across various markets [25][26] - The company anticipates a gross margin range of 62%-63% for Q4, influenced by product mix and potential tariff impacts [25][26] Other Important Information - Cash, cash equivalents, and investments totaled $10.1 billion, with $1.4 billion remaining for share repurchase [23] - The company is experiencing unprecedented demand for AI buildouts, with significant investments in new product development [8][24] Q&A Session Summary Question: Concerns about deceleration in growth rates - Management reassured that demand remains strong, with shipment variability being the primary concern rather than a decline in demand [32] Question: Gross margin guidance and drivers - Management indicated that product gross margins may fall below 60% due to a mix shift towards cloud and AI customers, but overall management of margins remains strong [36] Question: Positioning for full rack solutions - Arista is actively involved in designing full rack solutions, focusing on partnerships and addressing the convergence of compute and networking [40][42] Question: Stability of market share with cloud titans - Management confirmed stable market share, emphasizing collaboration with both software and cloud titans in decision-making processes [45][46] Question: Variability in shipments and customer plans - Variability is largely supply-driven, with strong demand from tier-one customers, but lead times for components remain long [49] Question: Growth outlook for 2026 - Management emphasized a commitment to double-digit growth, with variability expected rather than a definitive deceleration [52][60] Question: Confidence in participating in large builds with cloud titans - Management expressed confidence in Arista's role in upcoming large builds, particularly in scale-out and scale-across use cases [66] Question: Economic model for Blue Box deployments - The economic model for Blue Box deployments is expected to be similar to existing models, with a focus on operational excellence among a limited number of customers [70][84]

Financial Data and Key Metrics Changes - Total revenues for Q3 2025 were $2.3 billion, representing a year-over-year increase of 27.5%, exceeding guidance of $2.25 billion [21] - Non-GAAP gross margin was 65.2%, down from 65.6% in the previous quarter but up from 64.6% in the same quarter last year [21] - Operating income for the quarter was $1.12 billion, or 48.6% of revenue, with net income of $962.3 million, equating to 41.7% of revenue [21][22] - Diluted earnings per share increased by 25% year-over-year to $0.75 [22] Business Line Data and Key Metrics Changes - Software and services contributed approximately 18.7% of total revenue [7] - International revenues accounted for 20.2% of total revenue, down from 21.8% in the prior quarter [21] - R&D spending was $251.4 million, or 10.9% of revenue, up from $243.3 million in the last quarter [22] Market Data and Key Metrics Changes - The Americas region contributed almost 80% of total revenue, while international markets contributed approximately 20% [7] - The total addressable market (TAM) for the company is now over $100 billion, indicating significant growth potential [19] Company Strategy and Development Direction - The company aims for $1.5 billion in AI-related revenue for 2025, with a new target of $10.65 billion in total revenue for 2026, representing a 20% growth [8][27] - The focus is on building a modern AI stack that includes compute, memory storage, and a robust network foundation [8] - The company is committed to partnerships with major players in the AI space, including NVIDIA, AMD, and OpenAI, to enhance its product offerings [8][19] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in demand despite shipment variability due to supply chain constraints [32][49] - The outlook for Q4 2025 includes revenue guidance of $2.3 billion to $2.4 billion, with continued growth expected across cloud, AI, and enterprise markets [25][26] - The company anticipates a gross margin range of 62%-63% for Q4, influenced by product mix and potential tariff impacts [25][26] Other Important Information - The company has a cash balance of $10.1 billion and a remaining $1.4 billion available for share repurchase [23] - Deferred revenue increased to $4.7 billion, with a significant portion being product-related [24] Q&A Session Summary Question: Concerns about deceleration in growth rates - Management reassured that demand remains strong, and shipment variability is the primary reason for perceived deceleration [32] Question: Gross margin guidance and product mix - Management clarified that a mix shift towards cloud and AI customers may pressure product gross margins, but overall management remains confident [36] Question: Positioning for full rack solutions - The company is actively involved in designing full rack solutions and anticipates significant growth in this area [40][42] Question: Share stability within cloud titans - Management confirmed stable market share and emphasized collaboration with both software and cloud titans in decision-making [44][46] Question: Variability in shipments and customer plans - Management indicated that supply chain constraints are affecting shipment capabilities, but demand remains robust [49] Question: Growth expectations for 2026 - Management expressed optimism about achieving double-digit growth, with AI and campus segments expected to drive significant revenue [60][61] Question: Blue Box deployment and economic model - Management discussed the potential for Blue Box deployments to grow, particularly in specialized use cases, while acknowledging lower margins [70][84]

Financial Data and Key Metrics Changes - Total revenues for Q3 2025 were $2.3 billion, up 27.5% year-over-year, exceeding guidance of $2.25 billion [19] - Non-GAAP gross margin was 65.2%, down from 65.6% last quarter but up from 64.6% in the prior year [19] - Operating income for the quarter was $1.12 billion, representing 48.6% of revenue [20] - Net income for the quarter was $962.3 million, or 41.7% of revenue, with diluted earnings per share of $0.75, up 25% from the prior year [20] Business Line Data and Key Metrics Changes - Software and services contributed approximately 18.7% of total revenue [5] - International revenues were $468.3 million, accounting for 20.2% of total revenue, down from 21.8% in the prior quarter [19] - R&D spending was $251.4 million, or 10.9% of revenue, up from $243.3 million in the last quarter [20] Market Data and Key Metrics Changes - The Americas accounted for almost 80% of total revenue, while international markets contributed approximately 20% [5] - The company is experiencing momentum across cloud and AI titans, near cloud providers, and campus enterprises [6] Company Strategy and Development Direction - The company aims for $1.5 billion in AI aggregate revenue for 2025, with a new target of $10.65 billion in revenue for 2026, representing 20% growth [6][25] - The focus is on building a modern AI stack that includes compute, memory storage, and a solid network foundation [6] - The company is committed to partnerships with major players in the AI ecosystem, including NVIDIA, AMD, and OpenAI [6] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in demand despite shipment variability due to supply constraints [31] - The outlook for Q4 2025 is revenue guidance of $2.3-$2.4 billion, with continued growth expected across cloud, AI, enterprise, and provider markets [25] - The effective tax rate is expected to be approximately 21.5% for Q4 [25] Other Important Information - Cash, cash equivalents, and investments totaled $10.1 billion at the end of the quarter [21] - The company has a $1.5 billion repurchase program, with $1.4 billion remaining for future repurchases [21] - The total deferred revenue balance was $4.7 billion, up from $4.1 billion in Q2 [23] Q&A Session Summary Question: What are the underlying drivers for the deceleration in growth? - Management indicated that there is no concern regarding demand, attributing shipment variability to supply constraints rather than a decrease in demand [31] Question: Can you unpack the gross margin drivers for this quarter? - Management explained that a mix of product margins, particularly with cloud and AI customers, is influencing gross margins, which may be under 60% for products [34] Question: How is Arista positioned as it moves into more full rack solutions? - Management noted that Arista is involved in multiple projects with different accelerator options and is being sought for its expertise in networking solutions [36] Question: What is the status of partnerships with large language model providers? - Management confirmed that their market share remains stable and that decisions on networking hardware are a joint responsibility between software and cloud titans [40] Question: What is driving the variability in shipments? - Management stated that variability is largely supply-driven, with long lead times on components affecting shipment capabilities [43] Question: How does the convergence of front-end and back-end networks impact Arista? - Management believes that the convergence is advantageous, as it allows Arista to offer a consistent solution across infrastructure [64]

Core Insights - The AI-driven bull run of 2023 and 2024 has faced significant challenges in 2025 due to various factors including trade policies, Federal Reserve's rate cut ambiguity, recession fears, and competition from low-cost Chinese AI platforms [1] - Despite recent challenges, the technology sector is regaining momentum, bolstered by expectations of a U.S.-China trade deal and ongoing negotiations with other major trading partners [2] - Several large-cap AI stocks have shown negative returns recently, but a select few with favorable Zacks Ranks present strong short-term upside potential [2][8] Company Summaries Arista Networks Inc. (ANET) - ANET is positioned well with a robust network architecture for cloud and AI networking, focusing on proactive products and automation [6] - The company has an expected revenue growth rate of 18.7% and earnings growth rate of 12.8% for the current year, with a Zacks Consensus Estimate for earnings improving by 3.6% in the last 60 days [9] - The short-term average price target indicates a potential increase of 23.4% from the last closing price of $90.24, with a maximum upside of 44% [10] HubSpot Inc. (HUBS) - HUBS offers a cloud-based customer relationship management platform and is experiencing steady adoption from enterprise customers [11] - The integration of AI features is enhancing customer value, with expected revenue and earnings growth rates of 15.4% and 15%, respectively, for the current year [13] - The short-term average price target suggests a potential increase of 37.5% from the last closing price of $544.46, indicating a maximum upside of 70.8% [14] Twilio Inc. (TWLO) - TWLO is a leading provider of cloud communications and is focusing on generative AI to enhance customer engagement [15] - The company has an expected revenue growth rate of 7.9% and earnings growth rate of 22.3% for the current year, with a Zacks Consensus Estimate for earnings improving by 6.9% in the last 60 days [19] - The short-term average price target indicates a potential increase of 10.8% from the last closing price of $116.68, with a maximum upside of 45.7% [20] Adobe Inc. (ADBE) - ADBE has integrated AI applications across its flagship products and is diversifying into digital marketing services [21][22] - The expected revenue growth rate is 9.5% and earnings growth rate is 11.8% for the current year, with a Zacks Consensus Estimate for earnings improving by 1.2% in the last seven days [23] - The average short-term price target suggests a potential increase of 29.7% from the last closing price of $378.04, indicating a maximum upside of 60.1% [24] Okta Inc. (OKTA) - OKTA operates as an identity partner and leverages AI to enhance security and user experience [25][26] - The expected revenue growth rate is 9.4% and earnings growth rate is 16.7% for the current year, with a Zacks Consensus Estimate for earnings improving by 2.8% over the last 30 days [28] - The average short-term price target indicates a potential increase of 26.2% from the last closing price of $99, with a maximum upside of 43.4% [30]

Market Overview - U.S. stock markets closed the first quarter of 2025 negatively after two years of a bull run, with the technology sector, especially AI-related stocks, being the most affected due to the Federal Reserve's unclear stance on interest rates and recession fears [1] - In the first half of the second quarter of 2025, Wall Street experienced increased volatility due to the Trump administration's tariffs and trade policies impacting the U.S. economy and inflation [2] AI Stock Recommendations - Despite market headwinds, several AI stocks that underperformed in the first quarter have shown significant improvement recently, with five AI stocks recommended for investment based on favorable Zacks Rank [2][3] Company-Specific Insights AppLovin Corp. (APP) - AppLovin is focused on providing a software platform for mobile app developers, enhancing marketing and monetization [6] - The company reported strong fundamentals, with an expected revenue growth rate of 24.3% and earnings growth rate of 85.2% for the current year, alongside a 25.6% improvement in earnings estimates over the last 30 days [8] Amphenol Corp. (APH) - Amphenol specializes in connectivity solutions utilizing AI and machine learning technologies, benefiting from a diversified business model [9][10] - The company anticipates a revenue growth rate of 32.3% and earnings growth rate of 40.7% for the current year, with a recent 1.5% increase in earnings estimates [11] Arista Networks Inc. (ANET) - Arista Networks is positioned for growth with its AI networking solutions and a focus on cloud and data center architecture [12][13] - The expected revenue growth rate is 18.7% and earnings growth rate is 12.8% for the current year, with a 4% improvement in earnings estimates recently [14] Broadcom Inc. (AVGO) - Broadcom is experiencing strong demand for its networking products and AI accelerators, with projected AI revenues for Q2 2025 expected to rise 44% year-over-year to $4.4 billion [15][16] - The company forecasts a revenue growth rate of 21% and earnings growth rate of 35.5% for the current year, with a 0.6% increase in earnings estimates [19] Twilio Inc. (TWLO) - Twilio is a leading provider of cloud communications and is focusing on generative AI to enhance customer engagement [20][21] - The expected revenue growth rate is 7.8% and earnings growth rate is 21.3% for the current year, with a 6% improvement in earnings estimates [24]