Arista Networks (ANET) Stock Falls 14% After Earnings — Here’s Why the Beat Wasn’t Enough

TLDR

• Arista Networks reported Q1 2026 revenue of $2.71 billion, up 35% year-over-year, beating estimates of $2.61 billion
• Adjusted EPS came in at $0.87, up from $0.66 a year ago
• Stock fell nearly 14% after hours despite the beat, on margin and full-year guidance concerns
• Q2 guidance of $2.8 billion revenue and $0.88 EPS topped consensus, but full-year growth guidance of 27.7% missed analyst expectations of 28–30%
• Morgan Stanley reiterated Overweight, calling ANET “one of the cleanest ways to own the AI networking cycle”

Arista Networks posted a strong first quarter, but Wall Street’s reaction told a different story. The stock dropped nearly 14% in after-hours trading on Tuesday, falling below $148 after closing the regular session at $170.22, down 1.4%.

Arista Networks, Inc., ANET

The selloff came even as Arista cleared the bar on both revenue and earnings. Q1 revenue hit $2.71 billion, beating the $2.61 billion consensus. Adjusted EPS of $0.87 topped last year’s $0.66. Billings growth accelerated to 54% year-over-year, up from 43% the prior quarter.

For Q2, Arista guided to roughly $2.8 billion in revenue and $0.88 in adjusted EPS — both ahead of what analysts expected. So why the drop?

$ANET Q1’26 EARNINGS HIGHLIGHTS

🔹 Revenue: $2.709B (Est. $2.61B) 🟢; +35.1% YoY
🔹 Adj. EPS: $0.87 (Est. $0.81) 🟢
🔹 Q2 Revenue Guide: ~$2.8B (Est. $2.78B) 🟢
🔹 Q2 Adj. EPS Guide: ~$0.88 (Est. $0.86) 🟢
🔹 Cash Flow From Operations: $1.69B

Q2 Guide:
🔹 Revenue: ~$2.8B (Est.… pic.twitter.com/KT5KHP1lsK

— Wall St Engine (@wallstengine) May 5, 2026

The issue was margins. Arista projected an adjusted operating margin of 46% to 47% for Q2, down from 47.8% in Q1 and below the 48.8% posted in Q2 last year. That compression caught attention.

The bigger concern was the full-year guidance. Arista raised its 2026 revenue growth outlook to 27.7%, up from its prior 25% forecast. But Morgan Stanley analyst Meta Marshall noted that analysts had been expecting growth in the 28–30% range, and that gap is what drove the pullback.

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New Products in Focus

On the product side, Arista launched XPO high-density liquid-cooled pluggable optics, designed for next-generation AI data centers. The company says XPO cuts networking rack space by up to 75% and saves up to 44% of floor space versus traditional pluggable optics.

Arista also introduced what it calls a “universal AI spine” powered by its 7800 platform. The system is built to handle large-scale AI workloads, with features like Virtual Output Queuing to prevent bottlenecks during AI traffic bursts.

CEO Jayshree Ullal pointed to the company’s Net Promoter Score of 89, with 94% of customers rating the company positively, as evidence of strong execution.

Wall Street Still Bullish

Despite the post-earnings slide, analyst sentiment remains largely positive. Morgan Stanley’s Marshall kept his Overweight rating, writing that he sees Arista as one of the best ways to play AI networking demand. He acknowledged supply chain challenges but said Arista has historically managed them better than peers.

Other firms maintained Buy or Strong Buy ratings and several raised their price targets following the results.

Analysts at Evercore ISI had flagged Arista as a beneficiary of Alphabet’s new Virgo Network ahead of earnings, noting that Virgo’s architecture aligns closely with Arista’s high-radix, high-bandwidth switching products.

Even with Tuesday’s drop, ANET was still up nearly 30% year-to-date and more than 87% over the past 12 months heading into earnings.

Marshall’s note summed it up plainly: the debate around Arista is no longer about demand — it’s about how much supply the company can secure.