Arista slides after Nvidia discusses networking ambitions

Shares of Arista Networks (ANET) are under pressure on Thursday following Nvidia’s (NVDA) earnings call, where the latter discussed its networking ambitions and announced itself as “a significant ethernet player and a competitor to Arista,” according to Rosenblatt. Nvidia told shareholders that its Spectrum-X product “opens a brand-new market for us to bring large-scale AI to Ethernet-only data centers.”

NETWORKING AMBITIONS: During Nvidia’s earnings conference call, the AI sweetheart said “strong networking year-on-year growth was driven by InfiniBand. We experienced a modest sequential decline, which was largely due to the timing of supply, with demand well ahead of what we were able to ship. We expect networking to return to sequential growth in Q2.”

“In the first quarter, we started shipping our new Spectrum-X Ethernet networking solution optimized for AI from the ground up. It includes our Spectrum-4 switch, BlueField-3 DPU, and new software technologies to overcome the challenges of AI on Ethernet to deliver 1.6x higher networking performance for AI processing compared with traditional Ethernet. Spectrum-X is ramping in volume with multiple customers, including a massive 100,000 GPU cluster. Spectrum-X opens a brand-new market to NVIDIA networking and enables Ethernet-only data centers to accommodate large-scale AI. We expect Spectrum-X to jump to a multibillion-dollar product line within a year… Spectrum-X opens a brand-new market for us to bring large-scale AI to Ethernet-only data centers,” the AI titan added.

ARISTA COMPETITOR: In a research note post-Nvidia’s earnings call, Rosenblatt said the company has announced itself as a significant ethernet player and a competitor Arista Networks. Nvidia began shipping Spectrum X Ethernet Networking in Q1. The solution is optimized for artificial intelligence and, like Infiniband, is designed for the network to be a key part of the AI compute fabric, says the firm. Rosenblatt believes this is fundamentally different from what networks have been asked to do in the past, likely providing Nvidia with performance and competitive advantages over network-centric Ethernet players like Arista and Cisco (CSCO). The firm has a Sell rating on Arista with a $220 price target.

PRICE ACTION: In afternoon trading, shares of Arista have dropped about 4% to $304.55.