The article was written by Motek Moyen Research Seeking Alpha’s #1 Writer on Long Ideas and #2 in Technology – Senior Analyst at I Know First.

Summary:

Cisco and Arista has settled their court battle last year. Arista is now free to keep on taking away networking/data center customers away from Cisco.

Compared to Cisco, Arista’s revenue performance over the last five years showed it is the better investment for growth-minded investors.

ANET has notably higher valuation ratios than CSCO because it is perceived as the firm with the better growth potential. Cisco is too big and too old, it cannot grow fast anymore.

Arista’s management and engineers are former Cisco employees. Arista therefore has the technology and contact lists to disrupt Cisco’s small and large enterprise businesses.

I Know First has bullish algorithmic forecasts for ANET.

In spite of its big +16.62% five-day return, I’m still endorsing Arista Networks (ANET) as a strong buy. This young company engaged in network switching and data center services was built by former managers and engineers of Cisco (CSCO). Arista has settled its court battles with Cisco last year. Arista paid only $405 million to settle the patent infringement cases that Cisco filed against it. In return, Arista is now free to keep on taking customers away from Cisco’s traditional network router/switching business.

Further, I suspect Arista’s Software Defined Networking (SDN) and cloud networking services is winning more customers than Cisco’s. Based on the chart below, Arista is anti-Cisco. Unlike Cisco that uses proprietary SDN OS/software, Arista’s Extensible Operating System (EOS) is universal. EOS can work with any platforms. Arista SDN has best-of-breed integration with any private or public cloud platforms.

(Source: Arista)

Being an early leader in SDN is a big boost to Arista’s future growth. SDN has a market size of $7.9 billion last year. This can grow to $13.8 billion by 2021. Betting on ANET is a way for investors to ride the rise of software-defined networking or cloud network.

Arista’s CloudVision is part of the massive overall Software Defined Networking (Physical infrastructure, virtualization, and control software). Allied Market Research expects the overall SDN industry to reach a market size of $132.9 billion by 2022.

(Source: Allied Market Research)

Why ANET Has More Upside Potential

ANET’s high valuation is clear evidence that investors have more faith in the future of ANET than in CSCO. Arista is doing great selling alternatives to Cisco’s pricey network routers and switches. Arista is also being a clear leader in SDN. ANET also has much higher valuation ratios than Juniper Networks (JNPR). In other words, Arista (not Juniper) is perceived as the next baby Cisco.

The massive annual revenue growth rate of Arista is the easy explanation why its stock has higher valuation ratios than CSCO and JNPR. As you can see from the chart below, Arista’s revenue went from $140 million to $1.65 billion in less than 7 years. This amazing growth convinced a lot of investors that Cisco does not really have a lifetime monopoly on network switches. Arista, managed and staffed by former Cisco employees, is perceived as a fast-growing rival of Cisco.

(Source: MarketBeat)

The Network/Ethernet Switch Business Is Still Growing

Arista’s current valuation is also because it is a part of a growing industry, Ethernet switches and enterprise routers. Market Future Research estimates that the global market for Ethernet switches is growing at CAGR of 4.07%. It will have a market size of $6.84 billion by year 2023.

The entire switch/router global business was estimated to be worth $7.3 billion in Q3 2018. According to IDC, Arista now has 6.6% share. This makes it the third-biggest player, behind Cisco (54.4% share) and Huawei (8.6% market share). The obvious advantage of Arista is that is not a Chinese company like Huawei. U.S. and European data center and cloud computing companies are nervous about Chinese state-owned Huawei. National security issues and corporate/trade secrets are handicapping the growth of Huawei.

Conclusion

Ignore the newbie Seeking Alpha contributor who rated ANET a sell. Trust me, Motek Moyen – the no. 10 best-performing financial blogger (out of 6,693 bloggers) tracked by TipRanks. Arista Networks has a bright future because it competes well in SDN, and against traditional network router/switch leaders like Huawei, Cisco, and Juniper. You go long on ANET because you accept that it can grow much faster than CSCO or JNPR. ANET still trades below $265 – notably lower than the average 12-month PT of $290.81. ANET’S 52-week high is $313.77. This stock therefore has more room to go up to.

My buy rating for ANET is also due its bullish algorithmic forecasts from the stock picking AI platform of I Know First.

How to interpret this diagram.

The technical indicators and moving averages are also screaming a buy for ANET.

(Source: investing.com)





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