Why Arista Networks Stock Rocketed Higher This Week

Next-generation IT networking company Arista Networks (NYSE: ANET) cruised into the weekend on a high note. After all, according to data compiled by S&P Global Market Intelligence, the company's shares saw a more than 16% surge in price over the week. This occurred largely because of an analyst recommendation change for the better.

What was once a sell is now a hold, says pundit

On Tuesday, Rosenblatt Securities prognosticator Mike Genovese became slightly more optimistic on Arista's future, as he upgraded his recommendation to neutral from his previous sell. His price target on the specialty tech company is now $85 per share.

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According to reports, Genovese's adjustment is based on two key factors. He pointed to what he considers to be the solid performance by Arista peer Calix in its first quarter. To him, this indicates the company could perform well during a potential macroeconomic slowdown; ditto with Arista.

The analyst's second reason is that, to him, the sell thesis on the stock is no longer valid. It has proven to be more competitive than rival companies based abroad, particularly in China, and therefore deserves a reappraisal. Tariffs targeting the Asian nation actually benefit Arista, Genovese wrote, as they make offerings from domestic businesses more compelling.

Finally, according to the pundit, fieldwork revealed that Arista has signed notably larger than expected contracts with hyperscaler clients -- a key demographic in its business.

Economic slowdown? What economic slowdown?

The tariff war is already showing signs of cooling down, so it might not be as much of a factor as first anticipated. That said, Arista is in a growing segment at the right time, as clients need and demand quick, effective networking services. In some cases, these are near-indispensable, so I'd agree that the company should hold up well in an economic slowdown.

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Eric Volkman 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.