Prediction: This AI Infrastructure Stock Could Hit a $500 Billion Valuation by 2032

There are numerous ways for individual investors to capitalize on the growth trend in generative artificial intelligence (AI). You can buy shares in top "Magnificent Seven" stocks with high exposure to the trend, including Nvidia, Microsoft, and Alphabet.

You could also buy some other major hardware- and software-related tech stocks, such as Advanced Micro Devices, Oracle, and Broadcom. However, beyond these well-known members of big tech, there are also other stocks that, while attracting far less attention, have strong growth potential thanks to this trend.

A prime example is Arista Networks (NYSE: ANET). A top provider of cloud networking solutions for end-users such as AI data centers, the company has already benefited greatly from this trend. Already a strong performer over the past five years, its shares may be in for further outsized price appreciation in the years ahead, as the AI growth trend persists.

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How Arista benefits from the AI buildout

Arista Networks has been in business for over 20 years, becoming a billion-dollar business around 10 years ago. Still, it's only been over the past three years that the company experienced a sustained growth resurgence.

The reason for this is hardly a mystery. In late 2022, ChatGPT launched, sparking the start of the genAI growth trend. Soon after, tech companies, especially the largest names in the space, began to deploy hundreds of billions of dollars into building out their AI infrastructures.

With this booming surge in demand, it's no surprise that Arista Networks has benefited from a big jump in demand for networking hardware, like switches and routers, as well as the software used to power them. In terms of revenue and earnings, this catalyst has had a material impact. Back in 2022, the company's annualized revenue was coming in at around $4.4 billion. Over the trailing-12-month (TTM) period, revenue has come in at around $8.5 billion.

This rapid revenue growth has brought with it a correspondingly high rate of earnings growth. During the calendar year ending Dec. 31, 2022, Arista reported diluted earnings per share (EPS) of just over $1. Over the past 12 months, diluted EPS has come in at around $2.63, a nearly 150% increase. In turn, this rapid top- and bottom-line growth has enabled the stock to rally by nearly 267%, jumping from around $35 per share to around $129 per share today.

Next stop $500 billion? It's possible

At current prices, Arista Networks has a market cap of around $161.3 billion. To reach a $500 billion market cap and a share price of around $400 within six years, at a minimum, Arista will need to sustain 20% annualized growth.

On the one hand, this may not necessarily happen. After all, with AI boom skeptics like Michael Burry casting doubt on the depreciation schedules of AI infrastructure, which, in turn, calls into question the economic viability of AI, the boom could be on the verge of turning into a bust.

Then again, while Burry may be comparing the current buildout to the dot-com era buildout, history may not necessarily repeat itself. If AI lives up to the productivity growth projections touted by companies like Anthropic, analysts won't be splitting hairs over three-year versus six-year depreciation for AI infrastructure -- the technology will more than pay for itself.

Hence, the AI buildout boom may have the potential to persist well into the coming decade. What does this mean for Arista? The potential for its growth to remain at elevated levels. Sure, there's long been talk about Arista being at risk of "whitebox" competition, or reduced demand stemming from its customers building their own networking equipment and software. However, assuming Arista's track record of technological innovation persists, whitebox could remain an exaggerated concern.

The bottom line for new or existing Arista Networks investors

Admittedly, whether Arista Networks reaches a $500 billion market cap within six years depends on more than just sustaining its current rate of growth. The stock's valuation will also need to remain constant.

Currently, Arista has a forward price-to-earnings (P/E) ratio of just under 40. In the years ahead, even if annual growth stays around 20%, shares could experience a slight de-rating as investors anticipate a growth slowdown over a longer time frame.

With this, Arista could need more than just strong organic growth prospects on its side. For instance, management may need to pursue mergers and acquisitions more aggressively to boost the bottom line through cost and growth synergies.

Nevertheless, whether Arista reaches a $500 billion market cap by 2032 or not, for both new and existing investors, there's likely still a strong opportunity in the years ahead. However, rather than entering or adding to a position at any price, you may want to wait for renewed worries about an AI bubble or whitebox competition to create new buy-the-dip situations.

Thomas Niel has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices, Alphabet, Arista Networks, Microsoft, Nvidia, and Oracle. The Motley Fool recommends Broadcom and recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.