Arista Networks could be a good choice for steady growth

Arista Networks (ANET) primarily sells network switches to tech businesses. Switches are needed to connect many different electronic devices together at the same time and regulate the data flow between them. This may be less attractive as a tech product compared to GPUs or smartphones, but switches are an indispensable component in any data center, where companies store and process data from millions of customers. For example, Meta’s data center in Oregon apparently consist of ~600 racks that hold maybe two or three dozen switches each (i.e., more than 10000 switches in total). Put simply, ANET makes its money from the need of companies to accommodate ever larger data volumes over time and has consequently seen a steady double-digit growth in its revenues (+32%/yr) and net income (+46%/yr) for the last 4 years. They also seem to have competent leadership, with the same CEO (Jayshree Ullal) in charge since 2008, so she must know what she is doing.

Will growth also hold in the near or medium-term future? There are good reasons to think so. The number of data centers being constructed in the United States is growing and will likely continue to grow for the rest of the decade (Figure 1). On top of that, President Trump recently announced a $500 billion joint venture with several tech companies, termed Project Stargate, which entails the construction of another 20 large facilities. There is one drawback, though: ANET is primarily focused on ethernet switches. Although these are very widely used at the moment, they do not meet the technical requirements needed for AI networks, which use InfiniBand switches instead. This means that, unless they can pivot over time, ANET will only be, at most, an indirect beneficiary of a potential AI boom.

Figure 1. Projected power demand by US data centers (five-fold increase over the next decade).