Is This Under-the-Radar AI Stock a Buy Before Its Next Earnings Report?

When investors think of artificial intelligence (AI) stocks, Arista Networks (NYSE: ANET) isn't a top-of-mind name. But understandably so. With a much smaller business compared to Nividia's and Alphabet's, it just doesn't garner much attention. The stock hasn't been performing particularly well since October anyway, giving the market even less reason to take notice.

Nevertheless, this under-the-radar AI stock is a buy before its next earnings report, due in early August, because of what happened -- or more specifically, what didn't happen -- following the release of its first-quarter results in early May.

Investors decide the glass is half-empty

No, the stock didn't experience a post-earnings surge early last month. Quite the opposite, actually. It fell (sharply) despite topping its first-quarter earnings and revenue estimates in addition to raising its Q2 2026 revenue guidance. As it turns out, Arista didn't raise its guidance as much as investors and analysts were tacitly expecting it to. Those lofty expectations were already priced in, it seems.

That's a mistake that isn't apt to happen again.

But first things first. What's Arista Networks, and what makes it an artificial intelligence stock?

It's mostly a networking outfit. Routers, cables, and the specialty software meant to get the maximum performance out of its hardware are all in its wheelhouse. As it turns out, this is artificial intelligence's biggest data bottleneck right now. Offering real solutions to this problem is why Arista's first-quarter revenue grew to the tune of 35% year over year, extending and accelerating last year's growth trend.

Image source: Getty Images.

The company's management team committed the cardinal sin no technology name can afford to commit at this time, but they candidly acknowledged that demand for Arista's technology is outpacing the supply of the components and materials it needs to manufacture its solutions, so much so that it's ultimately crimping profit margins as a result. Specifically, Arista is now looking for full-year operating margins of only 46%, down slightly from last year's average of just above 48%.

Investors simply panicked in response to the unexpected news.

All the bad news is already priced in

In retrospect, though, the market arguably overreacted.

Although this year's profit margins are likely to come in slightly lower than last year's and the stock was richly priced for perfection, the top-line growth of 29% that analysts expect this year is still very impressive, as is the 22% earnings growth the analyst community is modeling for 2026. Next year's projected sales and profit growth are solid as well, in line with this year's anticipated improvements.

More importantly to interested investors, the shock stemming from the company's disappointing guidance delivered with its Q1 results has seemingly run its course. It's unlikely to take the same toll again the next time around in early August, when we'll be getting Q2's numbers; the bad news is already built in, and then some.

At least analysts seem to think so. Despite all the recent (mostly bearish) drama, the vast majority of analysts still rate ANET stock as a strong buy, with a 12-month price target of $188.42 that's nearly 20% above the stock's present price (at the time of this writing). That's not a bad way to start a new trade.

James Brumley has positions in Alphabet. The Motley Fool has positions in and recommends Alphabet, Arista Networks, and Nvidia. The Motley Fool has a disclosure policy.