Arista Networks Inc. (NYSE: ANET) may not be as well known among tech investors as Cisco (NASDAQ: CSCO), but it's outperformed its larger rival by a wide margin in the past year.

Arista posted fourth-quarter results that topped analysts' views after the closing bell on February 12. Guidance was higher than Wall Street forecasts, but the stock couldn't overcome the broader market downdraft in the following session.

However, as the S&P 500 recovered on February 14 and February 15, Arista rebounded along with it. 

Even with the gap down, Arista stock found support well above its 50-day average, as you can see on the Arista Networks chart. 

So far in 2024, Arista stock is up 12.81% versus Cisco's tiny gain of 0.30%. Cisco recently said it would lay off more than 4,000 workers, an indication of the tech industry continuing to slim down after ballooning during the era of pandemic-related growth in recent years.

Arista shines while Cisco slumps

While Cisco stock has been stuck in a slump, Arista shares have outpaced not only networking gear makers but also other technology stocks in the Technology Select Sector SPDR Fund (NYSEARCA: XLK).  

Within the sub-industry of cloud computing, Arista is the leader, boasting double-digit earnings and sales growth in the past eight quarters. 

In the quarterly earnings conference call, CEO Jayshree Ullal said cloud titans, the industry giants dominating cloud computing services and infrastructure, account for about 43% of revenue. 

Enterprise, including financials, accounts for about 36% and service providers for about 21%.  

Both Meta Platforms Inc. (NASDAQ: META) and Microsoft Corp. (NASDAQ: MSFT) are greater than 10% customer concentration at 21% and 18%, respectively, she said. 

CEO shoutout to Meta, Microsoft

Ullal added a special shoutout to those two particular big customers, saying, "Despite multiple capex reductions last year and the normal volatility of cloud titan and AI pivots, we cherish our privileged status with both M&M."

As is the case with cloud computing stocks, networking specialists are increasingly being viewed as artificial intelligence stocks. 

In response to an analyst's question about the partnership between Cisco and Nvidia Corp. (NASDAQ: NVDA) to build a more robust infrastructure for AI applications, Ullal referred to Arista's own work with Nvidia.

She mentioned Nvidia's dominance of the market for AI chips, saying that she plans to partner closely with Nvidia CEO Jensen Huang "to get a complete AI network design going."

She also said Arista will be working with other AI chipmakers, including Advanced Micro Devices Inc. (NASDAQ: AMD) and Intel Corp. (NASDAQ: INTC).

Analysts see stock as fairly valued

MarketBeat's Arista Networks analyst forecasts show a consensus view of "moderate buy" with a price target of $271.38, an upside of 1.77%. In other words, Wall Street views the stock as fairly valued.

That brings up the broader point of whether the S&P 500 as a whole is priced to perfection, meaning stocks are trading at somewhat frothy levels, reflecting optimistic expectations and leaving little room for error or disappointment in performance.

That seems to be the case with Arista Networks in particular, as investors were looking for even better guidance than the company offered. 

Arista's forward price-to-earnings ratio is 35, higher than the 28.6 P/E ratio of the tech sector as a whole.

A high P/E ratio can be a double-edged sword. On the one side, it suggests investor optimism and growth potential, but on the other, it indicates a stock may be overvalued, leading to increased risk.

Track record of topping Wall Street views

MarketBeat's Arista Networks earnings data show the company has a long history of beating both top and bottom-line views, so it's not necessarily a surprise anymore when that happens. 

This year, Wall Street expects the company to earn $7.47 per share, an increase of 8%, indicating that earnings growth is likely to slow in the coming quarters. The three-year earnings growth rate is 48%, so that would represent a significant decline.

However, analysts see that slowdown occurring largely as a result of the backlog easing. 

However, this isn't necessarily a significant problem, as it can indicate the successful fulfillment of existing orders and a transition to focusing on new opportunities. 

That appears to be Wall Street's view: In 2025, Arista Networks earnings are forecast to grow by 14% as corporate investment in AI infrastructure continues to gain steam.