Why Arista Networks Stock Flew Higher on Friday

One pundit following the stock now feels it’s quite undervalued.

Arista Networks (ANET 4.79%) went into the weekend on a high note, as its shares well outperformed the market that day. They rose by nearly 5% in value on an analyst upgrade, and with that trounced the 1.3% rise of the S&P 500 index.

Upgraded to buy

The person behind the Arista upgrade was Jefferies‘ George Notter, who now rates the stock a buy at a price target of $320 per share. Previously, he tagged it as a hold at a much lower price point ($240).

The reasoning behind this is straightforward, clear, and entirely realistic. In his latest research note on the networking company, Notter said that spending on cloud computing is “extraordinary right now,” a trend that plays very nicely into Arista’s core competencies.

That ramp-up in spending is due in no small measure to the skyrocketing popularity of artificial intelligence (AI). Many companies in a variety of economic sectors are intrigued by the many possibilities of AI and are gearing up to leverage the technology in their businesses. Due to its advanced nature, AI requires more powerful processing and greater storage requirements, hence the potentially lucrative opportunities for companies like Arista.

Double-digit growth expected for the first quarter

We should get a clearer picture of how the trend is affecting Arista next week; the company is scheduled to publish its latest set of earnings on Tuesday, May 7. On average, it is expecting a beefy 22% year-over-year rise in per-share net income (to $1.74), on the back of a 19% increase in revenue to $1.55 billion.

Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Arista Networks and Jefferies Financial Group. The Motley Fool has a disclosure policy.

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