This Artificial Intelligence (AI) Stock Could Handily Outperform Management's Own Guidance. Buy It Now.

U.S. hyperscalers say they have plans to spend over $700 billion on data center build-outs in 2026 alone. While the majority of that spending will go toward GPUs and CPUs, there are a lot more components that go into those data centers than computer processors. Investors looking beyond AI chipmakers may find some excellent opportunities.

One such opportunity is Arista Networks (NYSE: ANET). The company produced phenomenal results in 2025 on the back of massive AI spending, and management expects 2026 to be even better. In fact, it raised its 2026 outlook alongside its fourth-quarter earnings release. But its call for 25% revenue growth this year may be too conservative.

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Getting the most out of AI chips

Arista specializes in high-speed ethernet switches. These are the networking components that allow data centers to move bits from server to server with limited congestion, ensuring expensive GPUs and AI accelerator chips don't sit idle while waiting for new data to arrive. In other words, they're essential for hyperscalers to get the most out of their massive investments in chips.

Arista saw its revenue climb 28.5% last year to $9 billion on the back of strong demand for its AI-focused Ethernet switches. AI-related revenue, in particular, has done well, surpassing $1.5 billion last year.

Management's guidance for 2026 calls for 25% revenue growth, implying $11.25 billion in revenue. It sees its AI Center revenue climbing to $3.25 billion, accounting for the vast majority of the business's revenue growth this year.

Arista's management has a history of offering conservative guidance, though. Indeed, even the lowest analyst estimate for its revenue this year is $11.24 billion. And there's good reason for that.

First of all, Arista has shown consistent gains in market share in high-speed networking switches over the last few years. At the same time, the step-up in new data center spending from its biggest customers suggests the addressable market for its products should expand significantly this year.

Arista may be deliberately conservative in its outlook because it has some uncertainty about whether its big customers will spend as much as they projected. Customer concentration is a risk, but management may be overly conservative in this regard. That's seen in the discrepancy between its first-quarter guidance and the rest of the year. Management expects 30% revenue growth in the first quarter, climbing from $2 billion last year to $2.6 billion this year.

Another reason its outlook looks conservative is that deferred revenue climbed to $5.4 billion at the end of the year, up from $4.7 billion in the prior quarter and $2.8 billion at the start of 2025. Management notes much of that is hardware-related, meaning it's waiting to place hardware in data centers. With the major step-up in capital expenditures, that revenue might not be recognized until 2027, but as it grew throughout 2025, it seems likely that a good portion will be recognized in 2026.

With its fast revenue growth and strong margin profile, Arista Networks looks like a great buying opportunity at roughly 37 times forward earnings estimates. Investors should expect consistent raises to its outlook over the course of the year, but even if management's caution proves prudent, it still looks like a fair value right now.

Adam Levy has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Arista Networks. The Motley Fool has a disclosure policy.