Arista Networks, Inc. (ANET) Q2 2025 Earnings Summary

Executive Summary

• Arista delivered a clean beat-and-raise quarter: revenue $2.205B (+10.0% q/q, +30.4% y/y), non-GAAP EPS $0.73, and non-GAAP gross margin 65.6%, all above internal guidance and Wall Street consensus; Q3 guide: revenue ~$2.25B, non-GAAP GM ~64%, OM ~47% .
• Management raised FY25 revenue growth to ~25% (targeting ~$8.75B) from 17% ($8.2B), citing accelerating demand across AI, cloud, and enterprise, and a record non-GAAP operating income crossing $1B for the first time .
• Strategic momentum: announced acquisition of the VeloCloud SD-WAN portfolio to strengthen branch/enterprise WAN and embrace MSP channels; front-end and back-end AI networking progress with EtherLink and 7800/7700 spine platforms highlighted on the call .
• Near-term catalysts: increased FY guide, strong AI narrative (back-end networking target ~$750M, aggregate AI networking >$1.5B in 2025), and Q3 guide above prior levels; watch deferred revenue volatility and customer concentration as swing factors .

What Went Well and What Went Wrong

What Went Well

• Revenue/EPS/margins beat: $2.205B revenue vs Q2 guide $2.1B and consensus; non-GAAP GM 65.6% (guide 63%), OM 48.8% (guide 46%); CFO: “Operating income crossed $1B for the first time” .
• AI networking traction: CEO reaffirmed back-end AI networking revenue objective of ~$750M in 2025 and aggregate AI networking ahead of ~$1.5B; progress with four top AI “Titans” and 25–30 enterprise/neo cloud customers .
• Strategic expansion in enterprise WAN: Acquisition of VeloCloud SD-WAN; COO: leveraging MSP motion to cross-sell Arista across portfolio; plan to partner for full SASE overlay .

What Went Wrong

• Deferred revenue volatility and acceptance clauses: Product deferred revenue increased ~$687M q/q; management cautioned about significant quarterly moves independent of underlying drivers .
• Customer concentration risk persists: At least two largest customers contributing ≥10% each; balance improving but Titans still meaningful to annual results .
• Sovereign AI uncertainty: One sovereign AI customer fell out; while opportunity remains, management is “cautiously optimistic” and not factoring sovereign AI into 2025 numbers .

Financial Results

Core Financials vs Prior Periods and Estimates

* Values retrieved from S&P Global.

Segment Revenue Breakdown

KPIs and Balance Sheet

Guidance Changes

Earnings Call Themes & Trends

Management Commentary

• CEO: “We therefore raised our 2025 annual growth to 25%, now targeting 8,750,000,000.00 in revenue… This feels to us like a unique once in a lifetime opportunity” .
• CFO: “Operating income for the quarter was $1,080,000,000 crossing $1,000,000,000 for the first time… non-GAAP gross margin of 65.6%… improvement driven by inventory management” .
• COO: “Velo… has a really strong MSP motion… bring all of Arista’s portfolio through that same channel… and embrace that MSP motion” .
• CEO on competition: “No change in our environment… our innovation and differentiation has never been stronger… we hope we prove the naysayers wrong” .
• CEO on scale-out leadership: “The 7800 spine… flagship… buffering, congestion control… nobody else in the industry… looking forward to 800G” .

Q&A Highlights

• Competitive landscape vs NVIDIA/white box: Arista emphasizes platform performance, features, and customer intimacy; co-existence with white box where value/features not required; margins reflect efficiency, not pricing alone .
• Front-end vs back-end AI: Upside driven by both; AI traffic patterns pressuring front-end refresh (100→400→800G), not just GPU attachment .
• Deferred revenue/billings: Growth reflects new products/use cases (AI), with volatility from acceptance clauses; not guided but expected to remain variable .
• VeloCloud & SASE: SD‑WAN fills branch portfolio gap; MSP channel expansion; SASE to be delivered via best-of-breed partners, not full in-house stack .
• AI customer mix: Two Titans ≥100k GPUs; broader base of enterprise/neo cloud adds up despite one sovereign AI falling out; cautious on sovereign AI near term .

Estimates Context

• Arista beat S&P Global consensus in Q2 2025: revenue $2.205B vs $2.111B*, EPS $0.73 vs $0.650*, EBITDA ~$0.999B vs ~$0.988B*; magnitude of beat driven by stronger AI, cloud, enterprise demand and inventory management boosting margins .
• Q3 2025 consensus baseline: EPS ~0.714*, revenue ~$2.267B* vs company guide ~$2.25B; watch for estimate revisions reflecting guide, margin trajectory, and enterprise WAN expansion .
  Values retrieved from S&P Global.

Q2 2025 Actual vs Consensus

* Values retrieved from S&P Global.

Key Takeaways for Investors

• Beat-and-raise quarter with robust margin expansion; non-GAAP OM at 48.8% and GM 65.6% signal strong pricing/value and operating discipline .
• FY25 guide raised to 25% ($8.75B); near-term trading catalyst as estimates likely move higher on AI, cloud, and enterprise campus momentum .
• AI networking narrative strengthening: back-end revenue target ~$750M and aggregate AI networking >$1.5B in 2025; front-end refresh cycle accelerating to 400/800G .
• Enterprise WAN/branch now a growth vector via VeloCloud and MSP channel; expect improved cross-sell and broader enterprise penetration .
• Monitor deferred revenue volatility and acceptance clauses; sizable product deferred revenue can swing reported revenue timing quarter-to-quarter .
• Customer concentration remains a watch item; diversification progressing but top customers still ≥10% contributors .
• Execution watchlist: inventory management (positive GM driver), tariff scenarios, DSO/inventory levels, and pace of 800G product cycles with Jericho IV .