Why Arista Networks Stock Sank Today

Arista Networks (NYSE: ANET) stock lost ground in Wednesday's trading. The company's share price closed out the session down 6.2% in a day that saw the S&P 500 index slip 0.3% and the Nasdaq Composite index close out at roughly the same level as yesterday's finish.

Arista Networks stock lost ground today on the heels of a recent insider selling disclosure that was submitted to the Securities and Exchange Commission (SEC). The company's share price also saw bearish momentum in conjunction with Cisco's recent earnings report and inflation data for January that came in hotter than expected.

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Arista stock slumped today due to a confluence of factors

Arista recently submitted a filing to the SEC that showed that Chief Technology Officer and Senior Vice President of Software Engineering Kenneth Duda had sold roughly $95 million worth of company stock on Feb. 6. While there are many reasons why an executive might move to sell shares, investors often have a negative reaction when insider selling occurs. On the other hand, Duda's recent stock sales actually look relatively modest compared to his overall Arista holdings.

The market may have also reacted negatively to Cisco's systems recent quarterly report. Arista's rival published better-than-expected fourth-quarter results and forward guidance, and some investors may be seeing signs that Cisco is gaining market share. Conversely, there's a good chance Cisco's strong results actually reflect strong overall demand in the networking technologies industry.

Adding another bearish catalyst, the recent core consumer price index (CPI) report from the Bureau of Labor Statistics showed year over year inflation of 3.3% and sequential monthly inflation of 0.4% in January. These figures came in hotter than the average analyst estimates, which had called for annual inflation of 3.2% and sequential inflation of 0.3%. With the report, it's looking less likely that the Federal Reserve will cut interest rates in the near future. As a result, that could mean that businesses take a slower approach to building out their network infrastructure.

What comes next for Arista Networks?

While Arista could continue to see valuation volatility in the near term, the company looks to be positioned for success over the long haul. With spending on artificial intelligence (AI) data center infrastructure likely still in the early stages of a much bigger growth trajectory, today's pullback could actually present a good opportunity to buy the stock. None of the catalysts behind its stock sell-off today suggest major challenges for the company's broader growth story, and the stock could have substantial upside at current prices.

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Keith Noonan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Arista Networks and Cisco Systems. The Motley Fool has a disclosure policy.