Mizuho analysts said Alphabet’s (GOOGL) latest earnings report showed that the company is a “clear winner” in the ongoing AI boom.
“The qtr was that good and enough of a positive surprise to change a lot of naysayers, skeptics, and shorts opinions in my view,” they wrote.
“Add in lower opex growth and messaging by mgmt. of really managing spending and investment all towards AI with moderation in other areas, you get a bullish scenario of higher rev growth and margin expansion,” added the analysts.
However, according to analysts, there is another, less popular “clear winner” in the current landscape.
Specifically, the analysts view Arista Networks (NYSE:ANET) as one more well-positioned AI play, despite recent skepticism following a sell-side downgrade which was based on predictions of future market share losses to Nvidia (NVDA) as they enhance their networking technology combined with GPU-accelerated computing.
“ANET has two massive cloud customers that drive lion share of that core Data Center segment: MSFT and META,” the analysts noted.
“Guess who both just talked up higher capex and for longer into CY25? META and MSFT,” they added.
ANET stock saw a 4% rise following Meta Platforms' announced outlook on AI investment capital expenditure (capex), and the analysts believe there is further upside potential for the stock leading into its May 7 earnings.
However, they also cautioned that not all of this capex growth should be expected to directly benefit ANET, nor should there be expectations for a significant upward revision in guidance.
Generative AI investment in ethernet networking is viewed more as an event for 2025 and beyond, suggesting a gradual momentum build rather than an immediate acceleration in the next few quarters, analysts explained.
Meanwhile, Arista is primarily viewed in terms of its growth potential for 2025 rather than 2024. A recent downgrade to 'Sell' has heightened concerns that the consensus estimate of 15% year-over-year growth may not be exceeded, the analysts said.
“ANET has talked about around $700M in AI revs next yr as ethernet standards expand for AI networking eqpt,” they noted.
“But that looks and feels conservative to me and ANET is by far the dominant leader in DC ethernet for high speed, low latency, mission critical deployments. I just see no way that META, MSFT materially expand and build out AI data center capacity that does not benefit ANET.”
“ANET in $260s to me feels like a gift for those who buy and hold key AI winner stocks,” the analysts concluded.