Why Arista Networks Stock Was Down Today

Source The Motley Fool

Shares of Arista Networks (NYSE: ANET) sank lower on Monday. The company's stock lost 3.2% by the end of the trading day, but it was down as much as 5.6% earlier in the day. The loss comes as the S&P 500 finished down 0.8% and the Nasdaq Composite lost 1.2%.

Arista was impacted along with most of the market by tariffs expected to be levied by the Trump administration.

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The market wavers

Over the weekend, President Trump announced new tariffs on Canada, Mexico, and China. While agreements were eventually reached with Canada and Mexico that would pause their implementation for 30 days, stocks across the market sank. Any tariffs would likely lead to a rise in prices for consumers and businesses alike.

Trump has also promised tariffs and additional export controls that would affect the semiconductor industry specifically due to security concerns over China's ability to develop artificial intelligence (AI).

Arista, which primarily develops advanced networking hardware for AI data centers, could see its bottom line impacted by these measures. China is heavily involved in the global semiconductor supply chain and the company derived nearly $140 million of its $1.8 billion revenue last quarter from its Asia-Pacific clients, a significant portion of which are Chinese.

What's next for Arista?

Despite the uncertainty introduced by the tariffs, Arista is in a solid position to continue to ride the AI wave. With hyperscalers like Microsoft -- a partner of Arista's -- committing to massive capital expenditures in 2025, Arista should continue to see its revenues grow.

While the company has strong growth prospects, its price-to-earnings ratio (P/E) of 55 represents a decent premium. Arista's valuation could leave it especially vulnerable to any disruptions in the stock market. The company must continue to perform exceptionally well to continue carrying its valuation.

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Johnny Rice 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.

Disclaimer: For information purposes only. Past performance is not indicative of future results.
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