Arista Champions Ethernet for AI, Minimizes Tariff Impact

Arista Networks' Optimism for the Future of AI and Networking

Arista Networks is optimistic about the future of the AI datacenter industry, predicting that it will be driven by open standards like Ethernet or UALink. This belief has led the company to raise its financial forecasts, reflecting confidence in the market's direction.

The California-based networking company appears to have moved past concerns over the impact of tariffs, which had previously affected its stock price. Earlier this year, there were worries that profits might be negatively impacted. However, CEO Jayshree Ullal stated that the Q2 period ending June 30 was positively influenced by an efficient supply chain and inventory management, with minimal tariff impact during the quarter.

Ullal expressed a strong belief that both hyperscale and enterprise customers will increase their purchases of network equipment. Initially, Arista projected a 17% growth for the calendar year, but this has been revised upward to 25%, targeting $8.75 billion in revenue. The increase is attributed to growing momentum across AI, cloud, and enterprise sectors.

Despite this optimism, potential challenges remain. US President Donald Trump has indicated that new tariffs on imported semiconductors could be announced soon, which may increase the cost of components used in IT equipment, including Arista's network switches.

Strategic Approach to Networking

Arista's strategy involves both a scale-out front-end and a combination of scale-up and scale-out for back-end networks, according to Ullal. Scale-up back-end networks consist of high-bandwidth, low-latency interconnects that link multiple accelerators within a single rack. While these are currently based on NVLink, Ullal anticipates a shift toward open standards such as Ethernet or UALink in the coming years.

Similarly, scale-out back-end networks that connect accelerators across racks are typically based on InfiniBand. However, Ullal noted that these are rapidly migrating to Ethernet, following the release of the Ultra Ethernet Consortium specification in June.

This shift aligns with Arista’s strengths, particularly its Etherlink portfolio, which includes more than 20 products. Ullal highlighted that Ethernet as a transport protocol is likely to benefit Arista and Broadcom significantly.

Convergence of Back-End and Front-End Networks

As large language models expand into distributed training and inference use cases, Ullal expects the back-end and front-end networks to converge. This convergence will make it increasingly difficult to distinguish between the two in the future. She also predicts that Arista's AI networking revenue will exceed $1.5 billion in 2025 and continue to grow in the following years.

This is also the first time Arista has reported results since acquiring VeloCloud, a software-defined WAN business from Broadcom. CFO Chantelle Breithaupt noted that the VeloCloud acquisition is expected to contribute minimally to revenue during fiscal year 2025.

Financial Performance and Outlook

Arista reported revenue of $2.2 billion, representing a 30.4% increase compared to the same period last year and a 10% rise from the first quarter of 2025. Gains were recorded across all product sectors.

However, operating expenses and R&D spending increased in the last quarter, reflecting higher costs associated with new product introductions. For the next quarter, Breithaupt forecasts a modest revenue increase to approximately $2.25 billion.