Arista Networks Inc

Q1 financial performance beat expectations; strong growth - Total revenue $2.71B, +35.1% YoY and above guidance (company referenced guide of ~$2.6B). - Gross margin: 62.4% (within the 62%–63% guidance band), but down sequentially due to less favorable enterprise mix. - Operating income $1.29B (47.8% margin); net income $1.11B (40.9% margin); EPS $0.87 (+31.8% YoY). - Cash from operations ~$1.69B (described as Arista’s strongest ever). DSOs 64 days (improved from 70). - Deferred revenue: $6.2B (up from $5.37B), supporting forward demand visibility.

Guidance raised for 2026 (top-line and AI), but supply constraints remain a core risk - 2026 revenue outlook raised to +27.7% targeting ~$11.5B (previously lower). - AI fabric target raised to $3.5B (from $3.25B), i.e., more than doubling AI sales annually (company framing). - Gross margin guidance maintained 62%–64% (explicitly *inclusive* of mix and anticipated supply-chain cost increases). - Operating margin outlook ~46%; tax rate ~21.5%. - Q2 2026 guidance: revenue ~$2.8B; gross margin 62%–63%; operating margin 46%–47%; EPS ~$0.88 on ~1.27B diluted shares.

Most important operational “bad”: industry-wide shortages (wafers/silicon/memory/optics) constrain shipments and pressure gross margin - CEO said demand is outstripping supply in 2026; supply-chain issues are now viewed as “1–2 years” rather than short-lived. - Company is leaning into multi-year purchase commitments and paying higher costs to preserve supply continuity. - Result: expected gross margin pressure due to mix/trade-offs from ensuring supply (even though margins are still guided within range). - Working capital moving points investors should note: - Inventory $2.38B (up from $2.25B) = deliberate mix investment to fulfill demand. - Purchase commitments $8.9B (up from $6.8B), indicating continued heavy component purchasing ahead of deployments.