Arista Networks (ANET) Q3 2026 earnings review
Arista's revenue growth hits a record, while deferred revenue plateaus
Arista Networks, which makes high-speed switches for cloud data centers, grew faster than in any quarter since going public. Sales rose 58% to $3.66 billion, beating the company's own $3.3 billion plan, while tight overhead lifted operating profit margins. Chief executive Jayshree Ullal set a fourth-quarter plan that points to 59% growth at the middle of the range.
| Revenue | $3.66B +58.5% from a year ago |
|---|---|
| Profit per share, excluding one-offs | $1.20 +56% from a year ago |
| Operating margin, excluding one-offs | 49.1% 48.6% a year ago |
| Fourth-quarter revenue outlook | $3.9–$4.0B middle of the range: 59% growth |
⚖️ Verdict: 🟢 Bullish
The story got better because the fourth-quarter outlook adds $750 million to the full-year plan, lifting implied 2026 revenue to $13.35 billion by our math. Arista also launched open Ethernet switches for inside-the-rack AI connections alongside Microsoft, Meta, and AMD. One caution: deferred revenue—money billed for gear awaiting customer sign-off—dipped slightly after five quarters of big additions, while inventory jumped to $3.21 billion.
The question now is whether the flat deferred revenue balance means customer sign-offs finally sped up or new AI orders slowed down. If sign-offs sped up, the $3.21 billion inventory pile will quickly turn into cash; if orders slowed, that inventory becomes a risk. The deferred revenue and purchase commitment tables in the third-quarter 10-Q filing will settle it.
🐂 Bull Case
Record Revenue Beat Lifts Full-Year Trajectory
Arista builds high-speed networking switches and software for cloud and artificial intelligence data centers. Chief executive Jayshree Ullal said third-quarter revenue grew at the fastest pace since the company went public, "surpassing even my high expectations". Revenue reached $3.66 billion, beating the $3.3 billion outlook by 10.8% by our math, which is well above the 6.2% average beat over the prior three quarters.
- Product revenue: $3.19 billion, up 66.9% from a year ago by our math
- Service revenue: $467.6 million, up 17.9% from a year ago by our math
- Fourth-quarter revenue outlook: $3.9 billion to $4.0 billion, up 58.8% at the middle of the range
- Full-year revenue implied by the fourth-quarter outlook: $13.35 billion, or 48.3% growth by our math
This matters because the fourth-quarter plan adds $750 million to the $12.6 billion full-year target management set just three months ago. Growth is speeding up even though the prior-year comparisons are getting harder, which supports Ullal's claim of broad momentum across both AI and standard data center customers.
What to watch: the annual breakdown of AI, campus, and core revenue on the fourth-quarter call. That disclosure will show how much of the extra $750 million came from general enterprise and standard data center demand.
New Ethernet Products Target In-Rack and Multi-Site AI
Arista has historically had little presence inside the server rack, where rival chipmakers bundle their own proprietary networking gear. To enter that market, the networking specialist launched open rack-scale systems built on Ethernet for Scale-Up Networks (ESUN), an open industry standard for connecting AI chips inside a rack. It built these systems alongside AMD, Arm, Broadcom, Meta, Microsoft, and Qualcomm.
The company introduced its liquid-cooled Etherlink SU-144 hardware, "supporting up to 144 accelerators per rack in a single hop and scaling up to 1,024 XPUs via cross-rack topologies". Management also highlighted its 7800 AI Spine switch and EOS, its unified network operating software, to link networks "across geographically distributed data centers up to one million XPUs". Supporting many chipmakers reduces the risk that one vendor locks Arista out of the rack.
What to watch: customer trial updates for the 1.6-terabit and scale-up switches in the fourth quarter. Moving those trials into 2027 production orders would prove Arista can win inside-the-rack spending.
Operating Leverage Offsets Lower Gross Margin
Large cloud customers receive bigger volume discounts, and memory and chip costs have risen, which together have weighed on gross margin all year. Finance chief Chantelle Breithaupt still celebrated "setting new record highs in revenue growth, net income, and EPS". Gross margin excluding one-offs fell 1.2 percentage points from a year ago to 64.0%, as the cost of making products rose to 36.0% of sales, but it beat the 63% call target.
Arista more than made up for the lower gross margin by keeping overhead tight as revenue jumped. Sales and marketing spending excluding stock pay dropped 1.9 percentage points of revenue to 3.3% by our math, while general and administrative costs fell 0.3 percentage points to 0.7%. That discipline lifted the operating margin excluding one-offs by 0.5 percentage points from a year ago to 49.1%.
What to watch: fourth-quarter gross margin excluding one-offs. Holding near 64% while shipping nearly $4 billion of gear would show that component inflation is not eroding profitability.
🐻 Bear Case
Deferred Revenue Stopped Growing After Five Quarters
Deferred revenue is money billed for gear and support that Arista cannot count as sales yet, often because large AI networks have 6-to-18-month customer testing clauses. Ullal pointed to broad momentum across customer sectors: "This strong momentum across customer sectors highlights our increased relevance for the generative and agentic AI era." Yet the total deferred revenue balance stopped growing this quarter.
By our math, total deferred revenue slipped by $26.4 million from last quarter to $6.84 billion, after adding between $624.5 million and $826.3 million in each of the prior five quarters. This cuts against the narrative of unchecked pipeline expansion because customer sign-offs finally caught up with new deferred billings, which helped fuel the 58.5% revenue jump rather than just new orders.
What to watch: the product deferred revenue rollforward in the third-quarter 10-Q filing. A drop in new product additions would mean the backlog of unaccepted AI gear is draining rather than refilling.
Inventory Jumped While Buybacks Stayed at Zero
Arista has leaned into its supply chain to secure memory and chips for AI switches, which bulls view as a major competitive advantage that supports the $3.95 billion fourth-quarter revenue plan. However, that buildup also enlarges the company's balance-sheet exposure if a few major cloud customers delay their spending. Two standing risks—non-cancellable purchase commitments ($9.7 billion last quarter) and customer concentration—await the 10-Q filing.
- Inventories on the balance sheet: $3.21 billion, up $674.5 million (or 26.6%) in one quarter by our math
- Nine-month cash spent on inventory: $962.8 million, triple the $321.1 million outflow a year ago
- Nine-month share repurchases: $0, against $983.0 million in the first nine months of 2025
This matters because Arista is tying up working capital in components while leaving its share repurchase program idle for a third straight quarter, even with $14.36 billion in cash and securities.
What to watch: non-cancellable purchase commitments in the third-quarter 10-Q filing. A drop in commitments alongside the $3.21 billion inventory pile would signal that future component orders are slowing down.
👓 Other Themes
Investment Gains Pushed Statutory EPS Above Underlying EPS
Arista reported statutory profit of $1.22 per diluted share, which was two cents higher than its $1.20 profit per share excluding one-offs. Other income jumped to $273.1 million from $98.9 million a year ago because the company recorded $134.5 million in gains on strategic investments. Arista strips those investment gains out of its underlying results, alongside $138.1 million of employee stock pay. In addition, the firm collaborated with Anthropic, Google, and OpenAI on AI tools "that accelerate proactive vulnerability discovery".
💲 Other KPIs
Free cash flow—operating cash flow minus property and equipment purchases—dipped 11.1% from a year ago to $1.10 billion by our math, or 30.1% of revenue. Cash generation trailed the 82.9% jump in statutory net income because the networking group spent $674.5 million building inventory during the quarter and $100.7 million on capital expenditures.
Cash and marketable securities rose by $1.02 billion from last quarter and by $3.62 billion since the end of 2025, reaching $14.36 billion by our math. The US company carries no debt on its balance sheet and kept share buybacks at zero for a third straight quarter, leaving all free cash flow in the treasury.
Diluted shares edged up 0.1% from a year ago and 0.2% from last quarter to 1,278.2 million. Because management paused share repurchases across the first nine months of 2026, employee stock grants slightly increased the share count after it shrank in 2025.
🔮 Guidance
Raised. The fourth-quarter plan calls for $3.95 billion at the middle of the range, or 58.8% growth from a year ago by our math, up from the $3.56 billion implied by the prior $12.6 billion annual target. That puts full-year 2026 revenue at $13.35 billion (+48.3%), the fourth raise this year. If the 6.2% average beat pattern holds, fourth-quarter revenue would reach $4.19 billion by our math.
Unchanged. Management expects fourth-quarter operating margin excluding one-offs to match the 48% to 49% range guided for the third quarter and the full year. At the 48.5% middle of the range, the margin would step down 0.6 percentage points from the 49.1% delivered in the third quarter, but rise 1.0 percentage point from 47.5% in the fourth quarter of 2025.
New. The plan puts fourth-quarter profit per share excluding one-offs at $1.28 at the middle of the range, which is up 56.1% from $0.82 a year ago and up 6.7% from $1.20 in the third quarter by our math. That brings full-year profit per share to $4.37 at the middle of the range, up 46.6% from $2.98 in 2025.
❓ Key Questions
Did new product deferrals slow or did acceptances jump?
Total deferred revenue dipped $26.4 million sequentially to $6.84 billion after five quarters of adding over $600 million per quarter. How much of the third-quarter revenue beat came from clearing old customer acceptance clauses versus new in-quarter shipments?
Where do non-cancellable purchase commitments stand after the inventory build?
Balance-sheet inventory jumped $674.5 million in the quarter to $3.21 billion. Did non-cancellable purchase commitments rise further from the $9.7 billion reported in June, and how much of that supply is locked in for 2027?
Why has Arista not bought back shares all year?
Cash and marketable securities reached $14.36 billion with zero debt, yet share repurchases were zero for a third consecutive quarter. Is management saving cash to fund working capital for AI inventory, or waiting for a specific price level?
How does the extra $750 million of 2026 revenue split?
The fourth-quarter outlook lifts implied 2026 revenue to $13.35 billion from the $12.6 billion plan set in August. How much of that increase comes from the $3.5 billion AI floor versus the $1.25 billion campus floor and the core business?