Arista Stock Drops as Analysts Downgrade Nvidia Competition

Arista Networks‘(A NET) Growth of AI-powered network switches in data centers could be thwarted by chipmaker Nvidia (NVDA), says a Rosenblatt Securities analyst who downgraded Arista shares to sell on Friday.

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In today’s stock market, Arista stock fell 8.6% in midday trading to almost 271. Shares in Arista were up 26% in 2024 as of the market close on Thursday.

Nvidia shares fell 2.4% to 884.85 after the Nasdaq index retreated on inflation and concerns about the war in the Middle East.

Arista management has forecast $750 million in AI-related sales by 2025, much of which will come from Ethernet network switches. In July, Arista joined Cisco systems (CSCO), Hewlett Packard Enterprise (HPE) and other companies to form the Ultra Ethernet Consortium.

Ethernet switches compete with InfiniBand

Ethernet network switches compete with Nvidia’s InfiniBand chips, which transport data from computer servers to storage devices. Nvidia acquired InfiniBand chipmaker Mellanox in 2020 for $6.9 billion. However, Nvidia has also developed Ethernet network switches in case they take over the market.

Rosenblatt Securities analyst Mike Genovese said Friday that Nvidia’s positioning in the data center market — it is the largest seller of AI chips — gives the company an edge in selling other products.

Most of Arista’s revenue comes from computer switches and routers that connect racks of computer servers in data centers to long-distance communications networks.

Nvidia Stock Gets ‘The Most Loot’?

Genovese lowered his price target for Arista shares from 330 to 210.

“Our view is that Ethernet is a winning technology over the long term, but Arista may not benefit as much as it would need to support its current share price or higher,” Genovese said in a report.

With Ethernet gaining momentum, “most of the profits will go to Nvidia” and not Arista, he added.

Arista Stock Technical Reviews

Friday’s pullback took Arista shares out of the buy zone. Furthermore, Arista stock has an entry point of 292.66. Furthermore, it possesses a relative strength rating of 94 out of a best possible 99.

Meanwhile, Internet data centers will require more computing power and network bandwidth to handle AI workloads.

Excluding investments in AI infrastructure, one problem for Arista stock is that cloud computing giants are spending less on data center equipment.

Meanwhile, Arista’s revenue rose more than 48% in 2022. Furthermore, turnover increased by 34% in 2023.

For 2024, analysts polled by FactSet currently model revenue growth of just 12%, to $6.6 billion.

The Arista share is at number 25 on the rankings IBD 50 selection of growth companies. Both Nvidia and Arista are among AI stocks to watch. Nvidia stock is up 83% in 2024.

Follow Reinhardt Krause on Twitter @reinhardtk_tech for updates on artificial intelligence, cybersecurity and cloud computing.

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