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]

Group 1: Cisco's AI Infrastructure Growth - Cisco Systems is experiencing significant growth in AI infrastructure, with third-quarter fiscal 2025 AI infrastructure orders exceeding $600 million, driven by strong demand from webscale clients [1] - Year-to-date orders have surpassed Cisco's initial target of $1 billion, attributed to the strength of its secure networking portfolio and trusted partner base [1] Group 2: Security Challenges and Solutions - The rise of AI has introduced new security challenges, prompting Cisco to launch AI Defense, a platform that provides visibility into AI use, verifies model integrity, and enforces security measures [2] - Cisco's latest Duo Identity and Access Management aims to help security teams combat identity-related attacks exacerbated by AI automation [2] Group 3: Strategic Partnerships - Cisco has partnered with NVIDIA to create Secure AI Factories, a solution designed to protect AI systems at all levels [3] - A collaboration with ServiceNow has been established to integrate AI Defense into their platform for centralized AI risk management and compliance [3] Group 4: Competitive Landscape - Hewlett-Packard Enterprise (HPE) and Arista Networks (ANET) are emerging competitors to Cisco in the AI networking space [4] - HPE reported second-quarter fiscal 2025 revenues of $7.6 billion, with $1 billion from AI server sales, indicating strong growth in AI-driven edge and cloud infrastructure [5] - Arista Networks achieved $2 billion in revenues in the first quarter of 2025, driven by demand from hyperscalers, and is targeting $750 million in campus networking revenues by year-end [6] Group 5: Financial Performance and Valuation - Cisco's shares have increased by 11.6% year-to-date, slightly outperforming the Zacks Computer – Networking industry's return of 11.3% [7] - Cisco's forward 12-month price-to-sales ratio stands at 4.45, higher than the industry's 4.24, indicating a potentially overvalued position [10] - The Zacks Consensus Estimate for Cisco's fiscal 2025 revenues is $56.59 billion, reflecting a year-over-year growth of 5.18%, with earnings estimated at $3.79 per share, suggesting a 1.61% increase from fiscal 2024 [12]