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Arista Networks, Inc. (ANET) Q3 2025 Earnings Summary

Executive Summary

  • Arista delivered revenue of $2.308B, up 4.7% QoQ and 27.5% YoY; non-GAAP EPS of $0.75 vs consensus $0.714, a clear beat, while EBITDA was below consensus, implying mix and tariff-related margin pressure .
  • Q4 2025 guidance: revenue $2.3–$2.4B, non-GAAP GM 62–63%, non-GAAP OM 47–48%; FY25 revenue growth outlook raised to 26–27% ($8.87B), with campus $750–$800M and AI center ≥$1.5B maintained; FY26 revenue target reiterated at ~$10.65B with AI center ~$2.75B .
  • Management highlighted strong AI/cloud momentum (front-end and back-end convergence), rising purchase commitments ($7B), and supply-driven shipment variability (38–52 week component lead times), framing near-term margin mix and timing risk but durable demand .
  • Key stock catalysts: sustained AI center wins, execution vs Q4 margin guide amid tariffs, backlog conversion (deferred revenue $4.7B), and campus/VeloCloud integration accelerating enterprise growth .

What Went Well and What Went Wrong

What Went Well

  • Record Q3 results: revenue $2.308B; non-GAAP GM 65.2%; non-GAAP EPS $0.75 (+25% YoY), beating consensus on top line and EPS .
  • AI leadership: EtherLink and EOS powering large AI fabrics; front-end/back-end convergence with Arista uniquely selling both outside China; expanding AI ecosystem partnerships and ESUN/UEC standards work .
  • Enterprise/campus momentum: OpEx investments supporting new logos and geographic expansion; campus cited as “one of our best quarters,” and VeloCloud SD-WAN broadened WAN/SASE motion with partners .

What Went Wrong

  • Margin mix pressure: Q4 guide implies lower product margins when cloud/AI titans dominate mix; tariff scenarios embedded in 62–63% GM guide .
  • Shipment variability: Demand exceeds shipping capacity; 38–52 week lead times and customer acceptance clauses increase quarterly lumpiness and deferred revenue volatility .
  • EBITDA below consensus in Q3 (S&P Global estimates), highlighting operating efficiency needs vs elevated AI/cloud mix and tariff absorption (see Estimates Context) [Values retrieved from S&P Global]*.

Financial Results

Quarterly Financials: Q3 2024 → Q3 2025

MetricQ3 2024Q1 2025Q2 2025Q3 2025
Revenue ($USD Billions)$1.811 $2.005 $2.205 $2.308
GAAP Diluted EPS ($)$0.58 $0.64 $0.70 $0.67
Non-GAAP Diluted EPS ($)$0.60 $0.65 $0.73 $0.75
GAAP Gross Margin (%)64.2% 63.7% 65.2% 64.6%
Non-GAAP Gross Margin (%)64.6% 64.1% 65.6% 65.2%
GAAP Operating Margin (%)43.4% 42.8% 44.7% 42.4%
Non-GAAP Operating Margin (%)49.1% 47.8% 48.8% 48.6%

Segment Revenue Breakdown

MetricQ1 2025Q2 2025Q3 2025
Product Revenue ($USD Billions)$1.693 $1.877 $1.912
Service Revenue ($USD Billions)$0.312 $0.328 $0.397
Total Revenue ($USD Billions)$2.005 $2.205 $2.308

Operating KPIs

KPIQ1 2025Q2 2025Q3 2025
International Revenue (%)20.3% 21.8% 20.2%
DSOs (days)64 67 59
Inventory Turns (x)1.4 1.4 1.4
Deferred Revenue (Total, $USD Billions)$3.1 $4.1 $4.7
Cash from Operations ($USD Billions)$0.642 ~$1.2 ~$1.3
Purchase Commitments ($USD Billions)$3.5 $5.7 $7.0

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Revenue ($USD Billions)Q3 2025~$2.25 Actual $2.308 (result) Beat vs guide
Non-GAAP GM (%)Q3 2025~64% Actual 65.2% Beat
Non-GAAP OM (%)Q3 2025~47% Actual 48.6% Beat
Revenue ($USD Billions)Q4 2025—$2.3–$2.4 New
Non-GAAP GM (%)Q4 2025—62–63 New
Non-GAAP OM (%)Q4 2025—47–48 New
Effective Tax Rate (%)Q4 2025—~21.5 New
Diluted Shares (Billions)Q4 2025—~1.281 New
FY Revenue Growth (%) / $FY 2025~25% / $8.75 ~26–27% / $8.87 Raised
Campus Revenue ($USD Billions)FY 2025$0.75–$0.80 $0.75–$0.80 Maintained
AI Center Revenue ($USD Billions)FY 2025≥$1.5 ≥$1.5 Maintained
Revenue ($USD Billions)FY 2026~$10.65 ~$10.65 Reiterated
AI Center Revenue ($USD Billions)FY 2026~$2.75 ~$2.75 Reiterated
Non-GAAP GM/OM (%)FY 2026GM 62–64 / OM 43–45 GM 62–64 / OM 43–45 Reiterated

Earnings Call Themes & Trends

TopicPrevious Mentions (Q1 & Q2)Current Period (Q3)Trend
AI front/back-end convergence1:1 front/back ratio; growing 800G adoption; UEC moving InfiniBand to Ethernet Arista uniquely selling both front-end and back-end; harder to parse split; 800G→1.6T roadmap Strengthening convergence; supports Arista differentiation
Supply chain/lead timesBuffering for tariff uncertainty; purchase commitments rising Demand > shipments; 38–52 week component lead times; purchase commitments up to $7B Longer lead times; larger order book
Tariffs/macroGM impact 1–1.5 pts worst-case; cautious FY guide Q4 GM guide includes tariffs; OM guide intact Managed via absorption/mitigation; persistent headwind
Product performance (800G)EtherLink/7800 spine ramp; trials shifting 400G→800G Next-gen R4 series; HyperPort 3.2Tbps; branded share lead in 800GbE cited Accelerating 800G footprint
Blue Box strategyCoexist with white box; hardware diagnostics and NetDI as advantages Blue Box/JDM for scale-up use cases; single-digit customers; lower margin factored into FY26 Expanding selectively; margin-aware
Deferred revenue dynamicsProduct deferred volatility with new use cases and acceptance clauses Total deferred $4.7B; product deferred +$625M QoQ Elevated; timing variability
Enterprise/campus go-to-marketMSP motion via VeloCloud; geographic expansion; new logos Channel investments; Asia strength; campus cited as best quarter Broadening reach; strong pipeline

Management Commentary

  • “We achieved almost $2.31 billion this quarter… Our non-GAAP gross margin of 65.2% was influenced by favorable mix and inventory benefits.” — Jayshree Ullal, CEO .
  • “Our operating income for the quarter was $1.12 billion… diluted EPS $0.75, up 25% from the prior year.” — Chantelle Breithaupt, CFO .
  • “When the mix tilts heavily towards the cloud and AI, you can expect some pressure on our gross margins… this is a normal part of our mix conversation.” — Jayshree Ullal and CFO .
  • “Lead times… are very long… 38–52 weeks… making greater and greater purchase commitments. We wouldn’t do that without demand.” — Jayshree Ullal .
  • “Arista is the only successful vendor outside of China selling both front-end and back-end.” — Ken Duda, CTO .

Q&A Highlights

  • Growth “deceleration” concern: Management emphasized demand strength; shipment timing variability drives sequential growth; commitment to ~20% growth on higher base for 2026 .
  • Margin drivers: Mix toward cloud/AI titans lowers product margins; Q4 GM guide (62–63%) includes tariff scenarios; services margins assumptions noted .
  • Blue Box/JDM: Targeted to scale-up use cases with fewer customers; lower margin incorporated into FY26 outlook; hybrid strategies with EOS emerging at neoclouds .
  • Front-end/back-end convergence: Beneficial to Arista given feature-rich front-end needs; strengthens differentiation vs NVIDIA (front-end small) and Cisco (back-end small) .
  • Lead times/commitments: Heightened purchase commitments ($7B) to align with longer component lead times; campus planning cycles shorter, being addressed operationally .

Estimates Context

MetricQ3 2025 ConsensusQ3 2025 ActualSurprise
Revenue ($USD Billions)$2.267*$2.308 Beat
Primary EPS ($)$0.714*$0.75 Beat
EBITDA ($USD Billions)$1.084*$1.001*Miss
Forward MetricQ4 2025 ConsensusCompany Guidance
Revenue ($USD Billions)$2.380*$2.3–$2.4
Primary EPS ($)$0.756*— (no EPS guide)

Values retrieved from S&P Global*. Q3 consensus based on 21 estimates; Q4 consensus based on 21 estimates (S&P Global)*.

Key Takeaways for Investors

  • Demand remains robust across AI/cloud, with front-end/back-end convergence and 800G adoption expanding Arista’s TAM and reinforcing platform differentiation .
  • Near-term gross margin compression risk is driven by mix and tariffs, but operating discipline supports high-teens to ~20% growth on a larger revenue base into 2026 .
  • Backlog/deferrals and purchase commitments point to a strong pipeline; watch conversion cadence and acceptance timing to gauge shipment lumpy-ness .
  • Blue Box/JDM will broaden addressable scale-up opportunities at lower margin; EOS-driven platforms remain core and margin-accretive .
  • Q4 revenue guide brackets consensus; execution against 62–63% GM and 47–48% OM will be pivotal amidst tariff scenarios .
  • Enterprise/campus investments (including VeloCloud MSP channel) should sustain non-cloud growth and diversify mix over time .
  • Stock setup: Earnings beats on revenue/EPS, raised FY25 revenue outlook, and visible AI momentum are positives; margin/mix and tariff absorption are the key watch items into year-end .

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