Arista Networks Inc Earnings - Q4 2025 Analysis & Highlights
Arista Networks reported record 2025 results driven by generative AI and cloud momentum, with 28.6% revenue growth, record gross margins of 64.6%, and raised 2026 guidance to 25% growth amid supply chain challenges and memory cost pressures.
Key Financial Results
Q4 2025 revenue reached $2.49 billion, up 28.9% year-over-year, exceeding guidance of $2.3 billion to $2.4 billion.
Full year 2025 revenue achieved $9 billion with 28.6% growth, representing a record result.
Q4 2025 gross margin was 63.4%, slightly above guidance of 62% to 63% and down from 64.2% in the prior year, primarily due to higher mix of sales to cloud and AI titan customers.
Full year 2025 gross margin reached 64.6% non-GAAP, down from prior year due to customer mix.
Q4 2025 operating margin was 47.5% of revenue, contributing to full year 2025 operating margin of 48.2% non-GAAP.
Q4 2025 net income exceeded $1 billion for the first time at $1.05 billion, or 42% of revenue.
Q4 2025 diluted earnings per share was $0.82, up 24.2% year-over-year.
Full year 2025 diluted earnings per share was $2.98, a 28.4% increase year-over-year.
Cumulative port shipments surpassed 150 million ports in Q4 2025.
Business Segment Results
Cloud and AI titans contributed 48% of annual 2025 revenue, representing the largest customer segment.
Enterprise and financials recorded 32% of annual 2025 revenue.
AI and specialty providers (including Apple, Oracle, and emerging neoclouds) performed strongly at 20% of annual 2025 revenue.
Core cloud, AI and data center products contributed 65% of annual 2025 revenue, built on Arista EOS stack deployed across 10-gigabit to 800-gigabit Ethernet speeds.
Campus and routing adjacencies together contributed approximately 18% of revenue.
Network software and services based on subscription models contributed approximately 17% of revenue.
International revenues for Q4 came in at $528.3 million or 21.2% of total revenue, up from 20.2% last quarter, driven by stronger contribution from large global customers.
International growth in Asia and Europe exceeded 40% annually.
Campus and branch expansion exceeded the strategic goal of $800 million.
AI center networking exceeded the strategic goal of $1.5 billion.
800-gig adoption gained greater than 100 customers cumulatively for Etherlink products in 2025.
CloudVision customers added approximately 350 customers in the period, with an aggregate of 3,000 customers deployed over the past decade.
Capital Allocation
Q4 2025 share repurchases totaled $620.1 million at an average price of $127.84 per share.
Full year 2025 share repurchases totaled $1.6 billion at an average price of $100.63 per share.
Remaining repurchase authorization from the $1.5 billion program approved in May 2025 is $817.9 million.
Cash, cash equivalents and marketable securities ended Q4 at approximately $10.74 billion.
Capital expenditures for Q4 were $37 million.
Full year 2025 capital expenditures totaled approximately $100 million, primarily for expanded facilities construction in Santa Clara that began in October 2024.
Operating cash flow for Q4 generated approximately $1.26 billion.
Industry Trends and Dynamics
Generative AI and cloud momentum drove Arista's record 2025 results, with the company at the epicenter of mission-critical network transactions.
Networking for AI achieved production scale with an all Ethernet-based Arista AI Center, with the company as a founding member of Ethernet-based standards for both scale-up (ESUN) and scale-out (Ultra Ethernet Consortium 1.0) AI networking.
AI accelerated networking portfolio consisting of three families of Etherlink Spine-Leaf fabric are successfully deployed in scale-up, scale-out, and scale-across networks.
Agentic AI applications are increasingly running with large cloud, AI and specialty providers, with potential expansion to enterprise use cases including genomic sequencing, science, and software automation.
AMD adoption has grown to approximately 20% to 25% of deployments, up from approximately 1% a year ago, with customers preferring AMD as an accelerator of choice alongside open standards.
Hyperscalers are working more closely with Arista, with visibility extending beyond the typical three- to six-month range.
Competitive Landscape
Arista holds number one market share position in high-performance switching according to most major industry analysts.
Highest Net Promoter Score of 93% and lowest security vulnerabilities in the industry demonstrate competitive advantages in customer satisfaction and security.
Interoperability with multiple vendors including NVIDIA, AMD, Anthropic, Arm, Broadcom, OpenAI, Pure Storage, and VAST Data positions Arista as the preferred choice for open ecosystem deployments.
Arista emerging as gold standard terabit network to run intense training and inference models processing tokens at teraflops.
Preferred network innovator of choice for client to cloud and AI networking with highly differentiated software stack and uniform CloudVision software foundation.
Macroeconomic Environment
Memory cost pressures have worsened significantly in 2026, with prices described as "horrendous" and "an order of magnitude exponentially higher" than prior periods.
Silicon fabrication cost increases expected from Taiwan Semiconductor, the primary manufacturer of chips used in Arista products.
Supply chain allocation and inflation continue to impact the business, with Arista absorbing significant costs in 2025 but facing inability to absorb further increases in 2026.
Memory shortages expected to last multiple years, with memory now described as "the new gold for the AI and automotive sector."
DDR4 memory supply constraints and lead times from key suppliers creating variability in future quarters.
Purchase commitments increased to $6.8 billion at end of Q4 from $4.8 billion at end of Q3, primarily representing purchases for chips related to new products and AI deployments.
One-time price increases anticipated on selected, especially memory-intensive SKUs to address rising component costs.
Growth Opportunities and Strategies
AI networking revenue expected to double from 2025 to 2026, reaching $3.25 billion (raised from prior guidance of $2.75 billion).
Campus and branch expansion targeting $1.25 billion in 2026 for cognitive campus and branch solutions.
Scale-up networking opportunity primarily expected in 2027, with trials underway but production level deployment centered around 1.6T switching.
Scale-across networks leveraging coherent long-haul optics and 7800R4 spine chassis for distributed AI workloads across multiple data centers.
Blue Box initiative offering enriched diagnostics of hardware platforms (Netdi) that can run across both flagship EOS and open NOS platforms.
VeloCloud acquisition in July 2025 driving homogenous, secure client to branch to campus solution with unified management domains.
Cognitive AI-driven AVA (Autonomous Virtual Assist) curating data for higher-level functions with publish-subscribe state foundation in EOS and NetDL (network data lake).
Network-as-a-Service positioning with Arista validated designs for network simulation, digital twin, and validation functionality.
Telemetry capabilities providing real-time streaming telemetry and deeper AI capabilities for visibility into network and host-level information including RDMA counters, buffering, and congestion metrics.
Diversified customer base anticipated in 2026, with expectation of one or possibly two additional 10% customers beyond the current two major customers (Customer A at 16% and Customer B at 26% of 2025 business).
Cumulative customer base now exceeds 10,000 customers, with particular traction in the $5 million to $10 million and $1 million customer categories in 2025.
Global customer events conducted across three continents in 2025, touching 4,000 to 5,000 strategic customers and partners in the enterprise.
Financial Guidance and Outlook
2026 revenue guidance raised to $11.25 billion, representing 25% annual growth.
Q1 2026 revenue guidance of approximately $2.6 billion.
2026 gross margin guidance maintained at 62% to 64%, inclusive of mix and anticipated supply chain cost increases for memory and silicon.
Q1 2026 gross margin guidance of 62% to 63%.
2026 operating margin guidance raised to approximately 46%.
Q1 2026 operating margin guidance of approximately 46%.
2026 structural tax rate expected at 21.5%, up from the seasonally lower rate of 18.4% in Q4 2025.
Q1 2026 effective tax rate expected at approximately 21.5%.
Diluted shares outstanding approximately 1.275 billion for Q1 2026.
2026 AI centers revenue goal raised from $2.75 billion to $3.25 billion.
2026 campus revenue goal maintained at $1.25 billion.
Working capital optimization expected to continue with some variability in inventory due to timing of component receipts on purchase commitments.
Deferred revenue balance reached $5.4 billion at end of Q4, up from $4.7 billion in Q3, with product deferred revenue increasing approximately $469 million versus last quarter.
Customer Concentration and Diversification
Two customers greater than 10% concentration in 2025, with Customer A at 16% and Customer B at 26% of overall business.
Four large AI customers deploying AI with Ethernet, with three having deployed cumulative of 100,000 GPUs and now growing beyond pilots to production in other centers.
Fourth AI customer migrating from InfiniBand, currently below 100,000 GPUs but expected to reach that threshold in 2026.
Cloud and AI titans classified as significantly large-scale customers with greater than 1 million servers, greater than 100,000 GPUs, and R&D focus on models and sometimes their own XPUs.
Specialty cloud providers increasingly focused on AI with some cloud, rather than cloud with some AI, including Oracle's AI Acceleron and multi-tenant partnerships.
Working Capital and Balance Sheet
Days Sales Outstanding (DSO) came in at 70 days, up from 59 days in Q3, driven by renewals and timing of shipments.
Inventory turns were 1.5 times, up from 1.4 times last quarter.
Inventory increased marginally to $2.25 billion, reflecting diligent inventory management across raw and finished goods.
Accounts payable days were 66 days, up from 55 days in Q3, reflecting timing of inventory receipts and payments.
Organizational and Talent
Approximately 5,200 employees at end of 2025, including recent VeloCloud acquisition.
Newly appointed Co-Presidents Ken Duda and Todd Nightingale driving strategic and cohesive execution.
Tyson Lamoreaux appointed as newest Senior Vice President with deep cloud operator experience, igniting hyper growth across AI and cloud titan customers.
