Arista shares tumble after Nvidia voices networking ambitions

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Shares in Arista Networks (NYSE:ANET) tumbled 7.5% on Thursday in light of Nvidia’s (NVDA) earnings call, where the AI darling reflected on its networking ambitions.

More concretely, Nvidia (NASDAQ:NVDA) said that its Spectrum-X product “opens a brand-new market for us to bring large-scale AI to Ethernet-only data centers.”

However, Bloomberg Intelligence notes that “despite the pending launch of Nvidia’s Spectrum X for Ethernet,” Arista “could remain on track with its $750 million AI back-end networking 2025 sales goal.”

While Nvidia's move is described as “a natural transition,” Bloomberg Intelligence's team stresses that “details are still needed and we believe hyperscale-cloud customers still prefer an open-vendor ecosystem to reduce the technology economics, which will continue to position Arista well in cloud AI networking.”

On the other hand, analysts at JPMorgan said Nvidia’s latest print and guidance does raise competitive concerns for the broader hardware and networking sector, particularly Arista and Cisco Systems (NASDAQ:CSCO).

The Wall Street firm writes that Nvidia's projection of targeting a multi-billion dollar opportunity in Ethernet offerings next year starkly contrasts with Arista's backend networking target of $750 million for 2025.

Analysts pointed out that with the AI switch market expected to reach approximately $7 billion in 2025, Nvidia's ambitions imply it could capture a significant market share, posing a competitive threat to both ANET and CSCO.

"While on the headline the target for Spectrum-X is a competitive concern, the opportunity for Spectrum-X outside of a Nvidia full stack integrated solution and the portion of the revenue target attributed to NICs, Optics and other non-Switching components of Networking will be key in understanding better the full competitive impact," said analysts at JPMorgan.