Arista cats purr over $2B quarter while tariff time bomb ticks

Networking biz cashes in on AI hysteria, warns trade tensions could disrupt supply and margins

World War Fee Arista Networks is warning investors of the fear, uncertainty and doubt caused by the Trump administration's shifting trade policies.

The admonition came amid a strong start to 2025 thanks to demand from datacenter, cloud, and enterprise customers buying networking hardware in preparation for generative AI deployments.

Arista scored its first $2 billion quarter for calendar Q1 ending March 31, an increase of 27.6 percent year-on-year and coming just 11 quarters after its first billion-dollar milestone.

"Our cloud and AI momentum continues as we remain confident of our $750 million front-end AI goal in 2025," said chief exec Jayshree Ullal on a nearnings call.

She added that "Arista intends to be the premier and preferred scale-out network for all of those GPUs and AI accelerators," referring to ongoing interest in AI infrastructure for model development and training.

However the threat of trade turmoil looms large for Arista and the wider tech industry, particularly from US import tariffs that look likely to bump up the price or possibly even availability of components produced overseas.

"Our purchase commitments at the end of the quarter were $3.5 billion, up from $3.1 billion at the end of Q4. This was driven by a continued investment in chips, as well as an increase in buffers due to the tariff uncertainty," said chief financial officer Chantelle Breithaupt.

The Q1 results were above guidance thanks to stronger than expected non-cloud revenue, with minimal impact in this period from the absorption of applicable tariffs, she said.

Looking ahead to Q2, guidance is for revenue of approximately $2.1 billion, reflecting stronger seasonality than in prior years. However, Arista's shares dipped on expectations that its gross margin and operating margin may fall in the coming quarter.

Despite the macro uncertainty, Breithaupt said Arista remains confident in the demand from customers, but the second half of the year holds "significant ambiguity" over tariff scenarios. "Given these unknowns, our guidance for FY '25 currently remains unchanged despite the strong results and guidance we are reporting today," she said.

On the conference call with analysts to discuss results, Ullal laid out the uncertainty faced by many US companies with international supply chains.

"We are absorbing whatever tariffs we do have to deal with from China and other things," she said. "But should that change, we expect it to have some effect that [CFO] Chantelle [Breithaupt] alluded to in our gross margins that we have taken into consideration for the year, and some we will absorb and some we may potentially have to pass to our customers. But we don't know what we don't know. So, we can just go at this one quarter at a time."

In its Form 10-Q submitted to the SEC, Arista conceded that escalating US tariffs, and any countermeasures taken by affected countries, pose a risk to the firm's future commercial prospects.

It also noted that some key components in its products come from "sole or limited sources of supply" and this heightens the risk of changes in supply availability and extended lead times.

"Our products are primarily manufactured in Malaysia, Vietnam, and Mexico, and we also procure a limited number of products directly from China," the company warns. "In addition, our contract manufacturing partners procure some components from China for use in the manufacturing of our products. Because our products are primarily manufactured internationally, the import of our products into the United States may be affected by changes in applicable tariff policies."

While there is always a certain amount of uncertainty in doing business, Arista makes it clear there is now "significant uncertainty" about the future relationship between the US and various other countries, most significantly China, with respect to tariffs and trade policies. It went on to say that its margin may be "adversely impacted by unpredictable international trade policy and tariff rates."

Arista goes as far as to warn that "continued escalations could result in the imposition of extreme tariff or non-tariff measures, which may lead to a breakdown in international supply chains due to increased tariff costs and disruptions in the availability of goods."

This would unsurprisingly impact the company's ongoing operations: "There can be no assurance that we will not experience a disruption in our business related to these or other changes in trade practices and the process of changing suppliers in order to mitigate any such tariff costs could be complicated, time-consuming, and costly."

These are startling words from a US-based biz, warning that the trade policies of its own government potentially pose a serious risk to trade in the near future.

In addition, large purchases by a limited number of customers represent a substantial portion of its revenue, so if there were to be a drop-off in demand for AI infrastructure, Arista could take a sizable hit to income.

Sales to Microsoft, for example, represented 20 percent of Arista's total revenue last year, while Meta accounted for 26 percent of total revenue back in 2022.

However, Ullal said that for the moment at least, Arista is riding the AI wave.

"We're seeing a lot of demand, whether it's people pulling it in for tariffs or just the general excitement of Arista's products. So unless things dramatically change with tariffs, which force a recession, Arista is really experiencing good momentum." ®