Arista Networks, Inc. Q3 FY2026 earnings call

• AI Super Cycle & Network-Centric Shift: Arista is transitioning from a compute-centric to a network-centric architecture, supporting scale-up, scale-out, and scale-across AI fabrics. The company has surpassed 100 EtherLink customers and forecasts over 10 gigawatts of deployment across 10+ accelerator types by end-2027.
• Product Innovation (EtherLink & Scale-Up): The EtherLink portfolio includes 25+ switches designed for heterogeneous accelerators. Scale-up trials are expected to begin in 2027 with production in 2028, targeting larger radixes (126-144) within racks.
• Security & AVA Integration: Arista’s EOS operating system maintains a low CVE count (<100). Management highlighted the integration of AI-driven security via partnerships with Anthropic, Google, and OpenAI. The Autonomous Virtual Assistant (AVA) is being rolled out as an alpha feature in Cloud Vision to automate troubleshooting and security monitoring.
• Enterprise Momentum: Strong growth in enterprise sectors including healthcare, hospitality, and web services, driven by reliability, Zero Trust Networking (ZTN), and Macro Segmentation Services (MSS). Notable wins include strategic deployments at Asian web services firms and major hospital groups.
• Supply Chain & Execution: Despite industry-wide shortages, Arista improved supply chain execution through close vendor partnerships. Purchase commitments rose to $11.4 billion to secure silicon and memory for new products and AI deployments.

Total revenue for Q3 2026 was $3.66 billion, representing a 58.5% year-over-year growth rate and exceeding the previous guidance of $3.3 billion. International revenue accounted for 18.6% of total revenue ($682.5 million), down from 23% in the prior quarter due to geographic mix shifts. While specific segment revenue breakdowns were not provided in absolute terms within the prepared remarks, management highlighted that AI fabrics are the fastest-growing segment, expected to double to approximately $7 billion in FY2027, while Cognitive Campus is projected to grow 60% to approximately $2 billion in FY2027.

• Q4 2026 Revenue: Forecasted between $3.9 billion and $4.0 billion.
• FY 2026 Full Year Revenue: Increased for the fourth time in 2026, now guided at $13.3 billion (midpoint), reflecting ~48% annual growth.
• FY 2027 Revenue Growth: Guided for 38% to 40% annual growth, equating to approximately $18.5 billion at the midpoint.
• FY 2027 Segment Outlook: AI fabrics targeted to double to ~$7 billion; Cognitive Campus expected to grow 60% to ~$2 billion.
• Margins: Q4 gross margin guided at 63%-64%; Operating margin 48%-49%. FY 2027 gross margin expected at 62%-64% with operating margin ~49%.
• EPS: Q4 diluted EPS forecasted at $1.26-$1.30; FY 2027 effective tax rate ~21%.

• Supply Chain Constraints: Industry-wide shortages of components (silicon, memory) pose risks to fulfilling accelerated demand, though purchase commitments have increased to mitigate this.
• Inventory Volatility: Elevated inventory levels ($3.2 billion) and purchase commitments ($11.4 billion) may impact cash flow timing and turns ratio (dropped to 1.6).
• Deferred Revenue Fluctuations: Product deferred revenue balance is volatile due to new use cases, acceptance clauses, and product ramp-ups, making it less predictive of short-term revenue.
• Security Vulnerabilities: The rising threat landscape of AI-powered attacks requires continuous robust security updates; failure to maintain low CVE counts could impact customer trust.
• Scale-Up Adoption Timeline: Scale-up solutions are still in trial phases with production not expected until 2028, creating a lag in revenue contribution from this high-growth area.

Q: Michael Ng asked if the >10GW deployment figure is industry-wide or Arista-specific and how compute diversification creates opportunities. / A: Jayshree Ullal clarified that while much of the GW is new distributed capacity, Arista supports diverse XPUs in scale-out/scale-across and will add scale-up capabilities in 2027. This diversification allows Arista to connect multiple accelerator types, expanding its addressable market beyond single-vendor ecosystems.

Q: Mita Marshall requested the revenue mix split between scale-up, scale-out, and scale-across for 2027. / A: Ullal stated scale-up will be negligible in 2027 (material only in 2028), leaving scale-out and scale-across as the primary drivers. She noted the current mix is roughly 70/30 but expects scale-across to grow further in 2027 due to strong demand for their differentiated 7800 platform.

Q: Ben Reitzis asked about the status of two previously mentioned '10% plus' customers landing in Q4. / A: Ullal confirmed they expect Microsoft and Meta to remain top customers in 2026 and hope to add one or two more large customers. However, finalizing these deals depends on the manufacturing team's ability to ship sufficient product volume by year-end.

Q: George Notter inquired about the significant sequential jump in R&D expenses and whether it indicates a new run rate. / A: Ken Duda attributed the spike to major infrastructure upgrades for liquid cooling and deep partnership development with hyperscalers. CFO Chantelle Breithaupt maintained the long-term R&D run rate expectation remains between 9% and 11% of revenue.

Q: Amit Daryanani asked if Arista is involved earlier in system design with new accelerators and expressed confidence in supply chain execution for the 2027 guide. / A: Ullal confirmed early involvement with partners like Cerebrus and Microsoft to tune buffers and software performance. Breithaupt expressed high confidence in meeting the 2027 guide, citing strong internal execution and secured agreements with key suppliers, supported by rising purchase commitments.