Rosenblatt on Arista Networks (ANET): 'we think Nvidia clearly has ANET in its sights'

May 23, 2024 12:14 PM EDT
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Price: $337.36 -0.83%

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Rosenblatt analyst Mike Genovese reiterated a Sell rating and $220.00 price target on Arista Networks (NYSE: ANET).

The analyst comments "We downgraded ANET to Sell in April driven by concern that Nvidia (NVDA, Buy by H. Mosesmann) would become a key Ethernet competitor. We received a considerable amount of sell side, and some buy side, push-back on the call. During 1Q24 earnings, Arista management said it does not yet view Nvidia as a direct competitor on the Ethernet side. However, in our opinion, Nvidia announced itself as a significant Ethernet player via comments on its 1Q25 earnings call. Nvidia began shipping Spectrum X Ethernet Networking in 1Q25. The solution is optimized for AI and, like Infiniband, is designed for the network to be a key part of the AI compute fabric. This is fundamentally different from what networks have been asked to do in the past, likely providing Nvidia with performance and competitive advantages over networkcentric Ethernet players like ANET and Cisco (CSCO, Neutral). Nvidia says Spectrum-X is ramping in volume with multiple customers including a 100,000 GPU cluster, and expects Spectrum-X to jump to a multibillion-dollar product line within a year. Nvidia Developed Spectrum Ethernet After The Mellanox Acquisition - Nvidia acquired Infinband vendor Mellanox in 2019. While Nvidia's progress in developing and selling Infiband as part of its AI factory vision is well known, the company's hard work and progress in Ethernet has been less well followed. Nvidia built up capabilities to make high capacity Ethernet switch chips, like those made by BRCM, MRVL and CSCO. The company is also now shipping the Spectrum X Ethernet system for AI Data Centers, which includes the Spectrum-4 Ethernet switch, BlueField-3 DPU and new software capabilities. Arista and Cisco Take a Network-First Approach to Ethernet while Nvidia's Has an AI Compute Fabric-Centered Approach Optimized for AI - Networking companies like Arista and Cisco build Ethernet Switch fabrics for Data Centers. We would describe Nvidia's unique approach as building an Ethernet compute fabric optimized for AI from the ground up. Nvidia says Spectrum-X helps overcome the challenges of AI on Ethernet to deliver 1.6x higher networking performance for AI processing compared with traditional Ethernet. This compares to ANET which claims its Ethernet has a 5% to 10% performance advantage over Infiiband in AI clusters, such as the 25,000 GPU clusters being tested by Meta. Nvidia Took Additional Shots At Arista During The Conference Call - Nvidia used coded language to refute some of Arista's recent claims, such as Arista's comments that Meta is more pleased with its Ethernet cluster performance than its Infiniband cluster performance in its 25,000 GPU testbeds. We heard Nvidia say that Meta's most advanced LLM model, Llama 3, is trained on the H100 Infinband cluster at Meta and not the A100 Ethernet cluster. To us, this highlights that ANET has likely taken too much credit recently for its work on the Meta Ethernet cluster, a cluster that also includes Switching layers from Cisco and Celestica, and that is not being used to train the Hyper Scaler's most advanced AI models. Nvidia is an AI Freight Train - While ANET may say it does not see Nvidia as a competitor yet, we think Nvidia clearly has ANET in its sights. At Nvidia's rate of growth in the AI market, it looks like it could be just as large or larger in the Ethernet market vs. ANET within two or three years. We believe ANET should trade at a historical multiple, not an AI multiple. We are reiterating our Sell rating at $220 price target on ANET."

For an analyst ratings summary and ratings history on Arista Networks click here. For more ratings news on Arista Networks click here.

Shares of Arista Networks closed at $316.50 yesterday.

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