Arista Networks Inc (ANET) (Q2 2026) Earnings Call Highlights: Record $3 Billion Quarter and Raised 2026 Guidance Signal Strong AI Momentum

• Revenue: Total revenues in Q2 were just over $3 billion, up 37.7% year over year and above guidance of $2.8 billion.
• International Revenue: $697.8 million, or 23% of total revenue, up from 15.5% last quarter.
• Gross Margin: 63.4% in Q2, down from 65.6% in the prior year, and up from 62.4% in the prior quarter.
• Operating Expenses: $411 million, or 13.5% of revenue, up slightly from $396.8 million last quarter.
• R&D Spending: $278.1 million, or 9.2% of revenue, up slightly from $271.5 million last quarter.
• Sales and Marketing Expense: $109.8 million, or 3.6% of revenue, down slightly from 3.8% of revenue last quarter.
• G&A Costs: $23.1 million, or 0.8% of revenue, up slightly from $21.8 million last quarter.
• Operating Income: $1.5 billion, or 49.9% of revenue.
• Net Income: $1.3 billion, or 42.9% of revenue.
• Diluted Earnings Per Share: $1.02, a 39.7% increase from $0.73 in the prior year.
• Cash and Marketable Securities: Approximately $13.3 billion, up from $12.4 billion at the end of Q1.
• Cash from Operations: Approximately $1.1 billion.
• Inventory: $2.5 billion, up from $2.4 billion last quarter; inventory turns remained at 1.7.
• Purchase Commitments: $9.7 billion, up from $8.9 billion at the end of Q1.
• Deferred Revenue: Approximately $6.9 billion, up from $6.2 billion in the prior quarter.
• Capital Expenditures: $29.7 million for the quarter.
• 2026 Fiscal Year Outlook: Revenue growth of 40%, equating to approximately $12.6 billion; campus revenue goal of at least $1.25 billion; AI fabrics goal of at least $3.5 billion.
• Q3 2026 Guidance: Revenues of approximately $3.3 billion, gross margin of approximately 63%, operating margin between 48% and 49%, diluted EPS between $1.06 and $1.08.

Release Date: August 04, 2026

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Arista Networks Inc ANET achieved its first $3 billion quarter in revenue, up 37.7% year over year, and raised its 2026 revenue guidance to $12.6 billion, representing 40% annual growth.
• AI fabrics momentum is strong, with Etherlink switches now exceeding 100 cumulative customers, and the company is well-positioned in the Scale-Across segment, which has a TAM forecasted at $15-20 billion by 2030.
• The company introduced innovative AI features like Smart System Upgrade (SSU), Multipath Reliable Connection (MRC), and SRv6-based load balancing, enhancing performance and reliability for AI workloads.
• Supply chain improvements are evident, with secured memory supply through 2027, expanded vendor qualifications, and increased manufacturing and distribution capacity across three contract manufacturers and three distribution facilities.
• Financial performance is robust, with Q2 operating income at 49.9% of revenue, net income of $1.3 billion, and diluted EPS of $1.02, up 39.7% year over year, while maintaining a strong balance sheet with $13.3 billion in cash and securities.
• The company is seeing broad-based growth across all product sectors, including core data center, campus, and routing, with international revenue up to 23% of total revenue, driven by strong organic growth.

Negative Points

• Gross margin declined to 63.4% in Q2 from 65.6% in the prior year, impacted by end customer mix and anticipated supply chain cost increases for memory and silicon.
• The company faces persistent industry-wide supply chain tightness and rising component costs, which are expected to last until 2028, despite proactive mitigation efforts.
• Inventory levels remain elevated at $2.5 billion, and purchase commitments have nearly tripled to $9.7 billion, increasing financial risk and potential cash flow volatility.
• Product deferred revenue increased significantly, driven by customer-specific acceptance clauses, which could lead to quarterly volatility in revenue recognition.
• The company's visibility remains limited to about two quarters, and guidance is based on supply availability, with potential upside only if supply releases more.
• The 1.6T product is still in trials with single-digit customers, and production is not expected until 2027, indicating a slower ramp for next-generation technology.

Q & A Highlights

Q: Jayshree, you took up the calendar year '26 revenue guidance substantially from last quarter. But if I remember correctly, you got the AI target unchanged and only touch the campus. Can you kind of explain kind of the thought process there? What are you seeing from other customers and other verticals and other use cases that sort of ultimately result in sort of that algorithm that you just laid out going into the balance of calendar '26?
A: Jayshree Ullal (Chairman and CEO): If you had to ask me whether our AI number or campus number will go up, I think Chantelle, Todd, Ken and I absolutely believe it will. The question is not whether it will go up. The question is what is that number? And that I would like to reserve that $1.1 billion question to, well, it depends on how we ship. If we ship more front-end AI or we ship more WiFi or wired or Etherlink switches or routing. So I'd like to give our customers the priority and Todd's team the flexibility to ship what we can. And that's why we're not holding ourselves to a number. But I think at this point, we can most certainly say all numbers are going up.

Q: Given all the supply chain work that you've done and the improvements on lead times and such, Jayshree, maybe can you revisit your thoughts on adding a 10%? I think in the past, you've talked about 1 or maybe even 2 additional 10% plus customers. And in that, does the 2 Ms remain 10% plus customers as we think about the updated guide for 2026?
A: Jayshree Ullal (Chairman and CEO): We're going to increase the number by $1 billion or more. And undoubtedly, we remain very committed to our 2 longest partners, Microsoft and Meta. And I fully expect there to be 1, maybe 2 10% customers. I'll leave it at that just because we want all the flexibility on what's in the product sectors and who are the 10% customers as we ship. So I want to give Todd the ability to ship lots and lots of products.

Q: Could you address the growing partnerships you have with Neoclouds adopting custom XPUs? In particular, do you believe there are growing alternatives to NVLink and optical circuit switches for scale-up that you can address over time? How are you feeling about your relative opportunity in scale-up switches versus earlier this year?
A: Jayshree Ullal (Chairman and CEO): First, we live in an NVIDIA world. And I think we all can safely say it's a high percentage of the GPUs we connect to. So there's really 2 use cases there. One is where NVIDIA provides the full vertical stack and usually, that's an NVLink. So there's very little participation from Arista or anybody else's scale up. And generally, it Arista does better there in the scale-out or scale-across domain. The second is the non-NVIDIA accelerators, and you've heard me talk about our enthusiasm with the MI series from AMD. We're excited about the Google TPUs. Increasingly, we see that as a formidable training processor. And we're very excited about the range of inference accelerators as well. In that sector, where it's non-NVIDIA, Arista will be excited and will be working more closely, both in the scale-up and scale-out, in some cases, to build custom racks with their custom processors so that we can better tune our network with the behavior for their inference or training engine. In the NVIDIA cases, it's going to take a bit longer. I feel a little bit like 2, 3 years ago when we were talking about InfiniBand and now we don't mention InfiniBand, but it took 2, 3 years to move to Ethernet. So it will take time to go from a proprietary scale-up that's been around a long time with NVLink to these other alternatives, even if Ethernet is really good. But I expect us to do much better there.

Q: Last quarter, you talked about a supplier that was decommitted upstream. Maybe you can just expand a little bit on some of the efforts this quarter. I think you talked a little bit about a vendor qualification expansion in memory, strength in commitments from key suppliers. Are they getting more capacity? Are you offering more pricing on your side? Are you getting more customer advocacy? Any thoughts on there?
A: Jayshree Ullal (Chairman and CEO) and Todd Nightingale (COO): I don't want you to believe that suddenly, we waved the magic wand and all our problems have gone away. The industry is going to have a 2-year problem. I don't think we get out of it as an industry until 2028. But Arista is taking individually and specifically steps in the first half of this year that we believe will have results in the back half of this year. On the silicon side, we have very, very tight relationships with our silicon vendors, and that goes to both how we work through all the supply chain and how we've improved the delivery on those components, but also the technical engagements for new platforms that are super exciting to get into the field. As far as memory or I would just say memory, PCB optics, et cetera, we've been able to work pretty hard at adding optionality, qualifying new vendors very quickly through our engineering teams, and that helps us bring multiple paths to delivery possible through the supply chain. We've also worked very hard, especially in the last 6 months to improve our terms, and that means having shorter lead times and being more nimble.

Q: My question was just on the bigger picture view on all these technology changes going on in the marketplace, CPO, NPO, XPO. Obviously, customers are building next-generation racks and switch platforms. And I guess I'm just trying to understand how you see that mix of technologies changing going forward? And how does that benefit Arista or hurt Arista? Like what's the bigger picture perspective on what you guys are seeing longer term?
A: Jayshree Ullal (Chairman and CEO): I think it depends on the use case. Let me take the scale-up use case, which we are less prevalent in. I think there's very much a philosophy there on copper if you can, optics if you must. So I think you're going to see a lot of copper in that 2-meter, 3-meter distance, well within a rack, that type of thing and the importance of pluggable optics. But in some cases, there is a number of instances of proprietary implementations of traditional co-packaged optics that's been floating around. Arista is not a fan of 5 different proprietary implementations. They're going to have and

For the complete transcript of the earnings call, please refer to the full earnings call transcript.