Arista Networks (ANET) blew past a buy point of a cup base as it reached a new high on Thursday. The cloud-computing stock has climbed around 40% so far this year.
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The company’s networking and cloud-computing platforms and switches are used by data centers and in artificial intelligence environments.
Demand for their products looks promising, as data centers will need more computing power and network bandwidth to process AI workloads. The IBD Big Cap 20 stock’s two largest customers are heavy hitters Microsoft (MSFT) and Meta Platforms (META).
On May 29, Arista announced a collaboration with leading chipmaker Nvidia (NVDA) on AI technology that integrates compute and network domains into a single entity. Arista also announced its Etherlink AI platforms used in AI training and predicting models.
Arista Networks stock ranks No. 1 out of 15 stocks in the computer networking industry group, which ranks No. 57 out of the 197 IBD groups.
Cloud-Computing Stock Rebounds To New Highs
The stock formed a stage-one cup base with a 307.74 buy point after a flat base breakout in late March failed to progress. The base count reset to stage one after the stock fell below the prior base’s buy point.
Shares broke out of the cup base shortly after the company beat first-quarter adjusted earnings and revenue estimates on May 7. Arista stock climbed to a 52-week high before reversing lower in a six-straight-day sell-off.
Shares lifted after Morgan Stanley raised its price target to 325 from 300 and maintained its overweight rating on the AI stock on Wednesday. The cloud-computing stock gapped up and reached an all-time high on Thursday.
The stock bounced off its 10-week moving average and passed the buy point of the cup base and is extended from the 5% buy zone reaching to 323.13. But is topped an alternative buy point at 329.04 on Thursday.
Shares have climbed around 120% since their 52-week low nearly a year ago. Arista’s relative strength line and its quarterly earnings growth line, as shown by the green line on the weekly MarketSurge chart, have steadily climbed since 2021.
Robust Profit Growth Fades
Arista’s first-quarter earnings grew 39% following three periods of 46%-48% increases. FactSet estimates call for profit to rise 23% in the current quarter, with slowing to declining profits in the following three periods. Meanwhile, full-year 2024 profit projections guide for a 14% jump then a 13% pop in 2025. This follows robust 60% EPS growth in 2022 and 52% in 2023.
Sales growth decelerated for six straight quarters to 16% in Q1, with 13%-15% increases expected over the next four periods.
Arista projects second-quarter revenue of $1.62 billion to $1.65 billion. In the earnings release, the company also announced that the board of directors approved an additional $1.2 billion stock repurchase program.
Mutual funds have been adding Arista stock, with 2,710 owning shares in March, up from 2,562 in December.
ANET holds an IBD Accumulation/Distribution Rating of B-, meaning institutions have been modestly buying the stock over the last 13 weeks. The cloud-computing stock earns a 97 out of 99 Composite Rating and a likewise stellar 98 Earnings Per Share Rating.
Follow Kimberley Koenig for more stock market news on X/Twitter @IBD_KKoenig.
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