By Sam Boughedda
Arista Networks (NYSE:ANET) was downgraded to Neutral from Outperform, with its price target cut to $110 from $185 by Credit Suisse on Tuesday.
Analysts there explained that investor and industry expectations are high while data center industry dynamics are challenged heading into 2023.
The stock was downgraded based on Credit Suisse's recent industry channel checks, the firm's recent 2H22 outlook, and, most recently, the release of DatacenterHawk data center industry data.
"The big risk we see to ANET is buy side expectations for 2023E revenue growth of 20%+ versus sell side expectations of ~15%, suggesting anything below 20% is likely to be received negatively by shareholders from a guidance perspective," wrote the analysts.
"We see a lower likelihood of ANET achieving 20%+ growth because of (1) Deceleration in US Hyperscale capex spending from +23.3% FY22E down to +2.1% FY23E; (2) Elongated data center development times (from 5-9 months to now ~14 months), impacting ANET's shipment/revenue recognition with hyperscale customers; (3) Lower data center construction intensity in 3Q22 vs. 3Q21 (4.2% vs. 5.7%), meaning lower volumes of hyperscale data center capacity coming online in 2023 relative to 2022; (4) Server useful life increases, a trend seen across cloud and enterprise customers, a negative for ANET; and (5) Greater market share competitiveness as CSCO and White Box vendors grow less supply constrained."
Arista Networks shares are up 1.5% Tuesday.