Investing.com -- Arista Networks (NYSE:ANET) has been riding high on bets that it will benefit as demand for ethernet to help move the wave of data on AI data center networks, driven by the AI boom, continues to grow, but one analyst warns its time to sell the stock as the networking company isn’t likely to emerge as a big winner.
Rosenblatt analyst Mike Genovese doubled downgraded Arista networks to sell from buy, on worries that Arista’s strengths, which are in “the network architecture smarts of its founder and its Extensible Operating System, (or EOS), may not translate well for the AI market.”
But AI application require remote direct memory access, RDMA, not an extensible operating system, Genovese adds, flagging the potential risk to Arista 43%-44% operating margins.
“We think it could become more difficult to maintain these very high margins if EOS loses value in AI Data Centers and there is a mix shift to Enterprise driven by ongoing share,” the analyst said.
While ethernet is likely to emerge as key technology in the AI value chain, “most of the spoils will go to Nvidia (NASDAQ:NVDA),” Genovese says, as the chipmaker rise to become a one-stop-sho pfor AI development keeps it ahead of the game and right at the front queue to scoop up AI-related spending.
Nvidia not only has “access to the largest and the highest volume of Ethernet switching fabrics today”, Geneovese adds, but also “the most appropriate and functional networking operating system for AI, and a combined 2+ year lead on others in the industry.”
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With just $750 million expected in new AI sales, Arista’s current AI deals in the pipeline cast doubt on its ability to ramp up sales from datacenter customers.
While the company is expected to continue to gain market share in enterprise, this “type of business typically does not support super-high,” the analyst said.