Arista Networks, Inc. (ANET Quick QuoteANET - Free Report) is delivering the kind of growth that can support a premium valuation. Third-quarter revenues surged 58.5% year over year, earnings climbed sharply and management expects another substantial revenue increase in 2027 as artificial intelligence networking demand accelerates.

The challenge is price. ANET still trades above its Zacks sub-industry on forward earnings, leaving less room for execution setbacks, weaker margins or slower spending by its largest customers. For investors, the stock presents a favorable growth profile, but not an inexpensive one. Investors tracking the AI networking space may also want to watch Cisco Systems (CSCO Quick QuoteCSCO - Free Report) and NVIDIA (NVDA Quick QuoteNVDA - Free Report) .

ANET’s Earnings Growth Strengthens the Bull Case

Third-quarter 2026 revenues increased 58.5% year over year to $3.66 billion, marking Arista’s highest year-over-year growth rate since its initial public offering. Non-GAAP earnings rose 55.8% to $1.20 per share.

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Profitability kept pace with the top-line expansion. Non-GAAP operating income advanced 60.1% year over year to roughly $1.8 billion, while non-GAAP operating margin improved to 49.1% from 48.6% a year earlier.

That operating leverage matters because Arista is simultaneously increasing research and development spending for liquid cooling, higher-radix switching and AI networking products. The company generated approximately $1.2 billion in operating cash flow during the quarter and ended September with about $14.4 billion in cash, cash equivalents and marketable securities.

Arista’s 2027 Outlook Raises the Growth Bar

Management expects 2027 revenues to increase 38% to 40%, translating to approximately $18.5 billion at the midpoint. That outlook follows an expected 48% increase in 2026 revenues to roughly $13.3 billion.

AI fabrics are expected to remain the fastest-growing part of the business. Arista is targeting approximately $7 billion in AI fabric revenues in 2027, double its roughly $3.5 billion target for 2026. The company has already surpassed 100 Etherlink customers as Ethernet gains traction across scale-out and scale-across AI deployments.

Campus networking offers another growth leg. Management expects campus revenues to rise 60% to approximately $2 billion in 2027 from a 2026 target of about $1.25 billion.

The scale of those targets supports the growth case, but it also raises expectations. Investors paying a premium multiple are effectively betting that Arista can sustain rapid AI infrastructure adoption while continuing to win share in enterprise networking.

ANET’s Valuation Demands Continued Execution

ANET trades at 32.0X forward 12-month earnings per share, above the 27.2X multiple for its Zacks sub-industry. The stock also trades well above the 17.3X Zacks Computer and Technology sector multiple and 18.8X for the S&P 500.

The current multiple is below ANET’s five-year median of 40.5X, so the shares are not as expensive as they have typically been over that period. Still, the premium to industry and broader-market benchmarks shows that investors continue to price in substantial growth.

That makes execution increasingly important. Slower AI deployments, weaker pricing, unfavorable product mix or lower-than-expected growth could pressure the valuation even if Arista continues expanding revenues.

Arista Faces Margin and Customer Concentration Risks

Non-GAAP gross margin was 64% in the third quarter, down from 65.2% a year earlier. Management expects a 62% to 64% non-GAAP gross margin in 2027, indicating that rapid growth will not necessarily translate into expanding gross profitability.

Customer concentration adds another risk. Management expects at least three and potentially four customers to each account for more than 10% of 2026 revenues. Large cloud customers can generate substantial growth, but changes in their capital spending, deployment schedules or technology choices can also create volatility.

Arista is investing heavily to meet expected demand. Inventory increased to $3.2 billion in the third quarter from $2.5 billion in the second quarter, while purchase commitments rose to $11.4 billion from $9.7 billion. Approximately 80% of those commitments are expected to be used within 12 months.

Those investments demonstrate management’s confidence in demand, but they also increase the consequences if customer deployments shift or component requirements change.

Is ANET Worth Buying Now?

ANET currently carries a Zacks Rank #2 (Buy). Its Growth Score of B and Momentum Score of A complement that favorable short-term ranking, reflecting the company’s earnings expansion and operating momentum. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Valuation remains the main counterweight. ANET has a Value Score of D, while its VGM Score of C points to a less uniformly attractive profile once value, growth and momentum characteristics are considered together.

For growth-oriented investors, ANET remains attractive because its AI networking opportunity, earnings trajectory and 2027 outlook continue to strengthen. The 32.0X forward earnings multiple, customer concentration and margin pressures argue against treating the stock as an obvious bargain.

The Zacks Rank #2 and favorable Growth and Momentum Scores support a constructive stance, but the Value Score of D suggests investors should remain selective about the price they pay.