Arista Networks is set to report its Q4 2024 earnings on February 18, 2025, after market close. Investors are closely watching the results, particularly due to the significant decline in earnings expectations despite strong revenue growth.

Earnings Expectations and Financial Trends

The company is estimated to report an EPS of $0.57, a sharp decline of 72.6% year-over-year (YoY) and 76.3% quarter-over-quarter (QoQ). Revenue, however, is projected at $1.90 billion, reflecting 23.4% YoY growth and 5.0% sequential growth.

Despite the revenue increase, profitability is under pressure due to a shift in Arista’s customer base toward cloud and AI-driven businesses, which has resulted in margin compression. Gross margins are expected to decline to around 60%-62% for FY 2025, down from 64.6% in Q3 2024. Operating margins are also forecasted to fall within the range of 43%-44% for the year ahead.

A key highlight in previous quarters has been strong deferred revenue growth, which reached $2.5 billion in Q3, largely due to services and customer-specific contracts. This indicates future revenue stability, even as near-term margin pressures remain a concern.

Potential Stock Reaction Scenarios

Bullish Case (Positive Reaction)

If Arista delivers stronger-than-expected revenue and maintains a higher-than-anticipated gross margin (above 62%), the stock could see an upside move. Additionally, management commentary on AI networking demand will be crucial, particularly in relation to Meta collaborations and the EthonLink switch portfolio.

Another key factor will be the company’s forward guidance. If Arista maintains its full-year $8 billion revenue target for FY 2025, this could reassure investors about the long-term demand for AI-driven networking solutions.

Technical resistance levels to watch in a bullish scenario include $120.23, which was a recent peak on February 10, 2025, and $129.82, the high reached on January 22, 2025.

Bearish Case (Negative Reaction)

A weaker-than-expected earnings report, particularly if EPS falls below the $0.57 estimate, could drive the stock lower. Investors are particularly sensitive to the impact of margin deterioration, given the projected decline in gross margins to 60%-62%.

Concerns over AI infrastructure costs have already affected sentiment, with Arista’s stock dropping 22% following DeepSeek’s announcement of a low-cost AI model. If management fails to provide strong assurances about AI demand, investors may worry that lower infrastructure costs will weaken demand for high-end networking solutions.

Other risk factors include insider selling activity and competitive pressures. Arista’s CTO, Kenneth Duda, recently sold $95 million in shares, which has raised questions about executive confidence in the company’s future. Additionally, Cisco’s strong earnings report fueled market share concerns.

From a technical perspective, key support levels in a bearish scenario include $106.32, a recent low on February 14, 2025, and $100.30, which was a key level in late January.

Market Sentiment and Technical Analysis

Current technical indicators suggest a neutral to slightly bearish bias. The Relative Strength Index (RSI) is at 42, indicating that the stock is not yet oversold but has room to decline further if earnings disappoint. Additionally, the Average Directional Index (ADX) is around 15, suggesting that there is no strong trend in place, meaning the stock is still consolidating and could break in either direction based on earnings results.

Conclusion

Arista Networks’ upcoming earnings report carries significant uncertainty. While revenue growth remains strong, profitability concerns and shifting customer dynamics could weigh on investor sentiment.

If the company delivers strong AI-related growth and maintains its revenue guidance, the stock could recover toward the $120-$130 range. However, if earnings disappoint and margin pressures persist, a retest of $106 or even $100 is likely.

Investors should closely watch guidance for AI-driven demand, as this will likely determine whether the stock rebounds or continues its recent decline.