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    ANET
    Earnings call· Jun 2026(Q2 FY26)

    Arista Networks Q2 FY26 earnings call ANET

    Aug 4, 2026 Source

    Executive summary

    Arista Networks Q2 FY26 — Record Revenue and Strong AI Momentum

    Arista Networks delivered a record Q2 FY26, surpassing $3 billion in revenue, driven by strong AI and enterprise demand. The company significantly raised its full-year 2026 revenue guidance to $12.6 billion, reflecting improved supply chain execution and broad-based strength across product sectors. While industry-wide supply challenges are expected to continue, Arista's proactive measures and innovative AI fabric solutions position it for sustained growth in the AI super cycle.

    Highlights

    5

    • Achieved first $3 billion revenue quarter, up 37.7% year-over-year.

    • Increased FY26 revenue guidance to $12.6 billion, representing 40% annual growth, an incremental $2.1 billion over prior Analyst Day goal.

    • AI fabrics momentum with Etherlink switches now exceeds 100 cumulative customers.

    • Improved supply chain resilience, tripling multiyear purchase commitments to $9.7 billion.

    • Operating income reached $1.5 billion or 49.9% of revenue, with diluted EPS of $1.02, up 39.7% year-over-year.

    Concerns

    3

    • Industry-wide supply tightness and rising component costs persist, expected to last until 2028.

    • Inventory levels remained elevated at $2.5 billion, up from $2.4 billion quarter-over-quarter, affecting cash flow timing.

    • DSOs increased to 68 days from 64 days in Q1 due due to timing of customer shipments and invoicing.

    Guidance & targets

    11
    CategoryTargetConfidence
    FY26 Revenue
    $12.6 billion
    high materiality
    High
    FY26 Campus Revenue
    at least $1.25 billion
    medium materiality
    High
    FY26 AI Fabrics Revenue
    at least $3.5 billion
    high materiality
    High
    FY26 Gross Margin
    62% to 64%
    medium materiality
    High
    FY26 Operating Margin
    48% to 49%
    high materiality
    High
    FY26 Effective Tax Rate
    21.5%
    low materiality
    High
    Q3 FY26 Revenue
    approximately $3.3 billion
    high materiality
    High
    Q3 FY26 Gross Margin
    approximately 63%
    medium materiality
    High
    Q3 FY26 Operating Margin
    between 48% and 49%
    high materiality
    High
    Q3 FY26 Diluted EPS
    between $1.06 and $1.08
    high materiality
    High
    Q3 FY26 Effective Tax Rate
    approximately 21.5%
    low materiality
    High

    Segment performance

    1
    SegmentRevenueYoYQoQMargin
    International
    Increased quarter-over-quarter primarily due to strong organic growth and a shift in geographic mix of sales to large global customers.
    Percentage of total revenue: 23%Prior quarter percentage of total revenue: 15.5%
    		$697.8 million———

    Operational metrics

    21
    Revenue
    $3 billionup 37.7% YoY
    Q2 FY26

    First $3 billion revenue quarter for the company.

    Historical Annual Revenue
    $2.9 billion
    FY21

    For perspective, the entire year's revenue in 2021 was $2.9 billion.

    Non-GAAP Gross Margin
    63.4%down from 65.6% YoY; up from 62.4% QoQ
    Q2 FY26

    Improved sequentially due to tariff refunds and customer mix.

    Non-GAAP Operating Expenses
    $411 millionup slightly from $396.8 million QoQ
    Q2 FY26

    Increased due to strategic investments in AI-related technologies.

    R&D Spending
    $278.1 millionup slightly from $271.5 million QoQ
    Q2 FY26

    Demonstrates continued commitment to networking innovation.

    Sales and Marketing Expense
    $109.8 milliondown slightly from 3.8% of revenue QoQ
    Q2 FY26

    Representative of efficient go-to-market methodology.

    G&A Costs
    $23.1 millionup slightly from $21.8 million QoQ
    Q2 FY26

    Reflects strong base cost productivity within a pure-play networking business model.

    Operating Income
    $1.5 billion
    Q2 FY26

    An incredible financial outcome for the company.

    Other Income and Expense
    $120.3 million
    Q2 FY26

    Favorable other income and expense for the quarter.

    Effective Tax Rate
    20.3%
    Q2 FY26

    Effective tax rate for the quarter.

    Net Income
    $1.3 billion
    Q2 FY26

    Net income for the quarter.

    Diluted EPS
    $1.02up 39.7% from $0.73 YoY
    Q2 FY26

    Based on 1.276 billion diluted shares.

    Cash and investments balance
    $13.3 billionup from $12.4 billion QoQ
    Q2 FY26

    Cash, cash equivalents and marketable securities at quarter end.

    DSOs
    68 daysup from 64 days in Q1
    Q2 FY26

    Increased due to timing of customer shipments and invoicing.

    Inventory Turns
    1.7
    Q2 FY26

    Remained consistent for the quarter.

    Inventory
    $2.5 billionup from $2.4 billion QoQ
    Q2 FY26

    Fluctuations expected to continue due to component timing and availability.

    Purchase Commitments
    $9.7 billionup from $8.9 billion at Q1 FY26; tripling from $3.6 billion a year ago
    Q2 FY26

    Mostly represents purchases for chips related to new products and AI deployments.

    Deferred Revenue
    $6.9 billionup from $6.2 billion QoQ
    Q2 FY26

    Majority is product related; volatility expected due to customer-specific acceptance clauses.

    Accounts Payable Days
    57 daysup from 54 days in Q1
    Q2 FY26

    Reflecting the timing of inventory receipts and payments.

    Capital Expenditures
    $29.7 million
    Q2 FY26

    Capex for the quarter.

    Share Repurchase Authorization Remaining
    $817.9 million
    Q2 FY26

    No common stock repurchased in Q2 FY26.

    Industry KPIs

    8
    MetricValueDetails
    Capital return$817.9 millionUSD
    Backlog order book$9.7 billionUSD
    Orders backlog quality$9.7 billionUSD
    Segment growth margin targetsat least $1.25 billionUSD
    Ai cloud infrastructure ordersat least $3.5 billionUSD
    Revenue mix by product customer type23%%
    Design wins product cycle transitionssingle digitscustomers
    Front end vs back end scale up vs scale across m30%%

    Orderbook & backlog

    2
    Purchase Commitments$9.7 billionQ2 FY26

    up from $8.9 billion at Q1 FY26

    Almost tripling from $3.6 billion a year ago; mostly represents purchases for chips related to new products and AI deployments.

    Total Deferred Revenue$6.9 billionQ2 FY26

    up from $6.2 billion in Q1 FY26

    Majority is product related; product deferred revenue increased approximately $600 million sequentially. Volatility expected due to customer-specific acceptance clauses.

    Product announcements

    3
    ProductTypeDetails
    7060XE7launch
    Liquid Cooling Optionslaunch
    EOS Innovations (SSU, MRC, SRv6)update

    Deals & partnerships

    1
    Anthropic and Palo AltoWebinar on AI security

    Arista will host a webinar with Anthropic and Palo Alto to discuss making AI secure, focusing on vulnerabilities and proactive solutions with technology, systems, and processes. Scheduled for September 8th.

    Capital programs

    1
    Santa Clara Facilities Expansionon track

    Benefit: expanded facilities

    Construction work to build expanded facilities in Santa Clara remains on track.

    Risks & headwinds

    3
    Industry-wide supply tightness and rising component costsuntil 2028

    Expected to persist until 2028

    Mitigation: Arista has taken individual and aggressive proactive steps, including hiring a new global operations executive, partnering closely with key suppliers, and increasing multiyear purchase commitments to $9.7 billion.

    Elevated inventory balances affecting cash flowahead of deployments

    Inventory at $2.5 billion, up from $2.4 billion QoQ

    Mitigation: Working through balancing of component timing and availability; increased resiliency through optionality and expanded vendor qualification.

    Volatility of product deferred revenue balancesquarterly basis

    Product deferred revenue increased approximately $600 million sequentially

    Mitigation: Acknowledged as a result of increased customer-specific acceptance clauses; management notes it can move significantly independent of underlying business drivers.

    What to watch in Q3 FY26

    5

    FY26 Revenue Growth

    next quarter
    Current40% annual growth ($12.6 billion)
    TargetMaintain or further raise

    Why it matters

    Verifying the company's ability to sustain its accelerated growth trajectory and meet its significantly raised full-year revenue target.

    Given our improving stance in supply chain, we are excited to increase our guidance for the third time this year to $12.6 billion revenue in 2026. We are now projecting 40% annual growth

    Q&A highlights

    5

    Does increasing complexity in AI networking (denser clusters, multi-campus/data center connections) increase the value of Arista's integrated platform over white box solutions, and are customers rethinking build vs. buy?

    Jayshree Ullal affirmed that Arista's strategy has accelerated, especially in scale-out and scale-across AI fabrics, where consistent performance, security, and traffic engineering are critical. She noted white box solutions are tactical for simpler use cases, but complex AI training and inference demand Arista's Etherlink system-wide portfolio with features like MRC and SRv6, which are difficult to achieve with a box-by-box approach.

    “I think you're absolutely right that Arista's networking strategy has accelerated. And as you know, there's 3 types of AI fabrics that are critical for us to participate in, scale-up, scale-out, and scale-across.”

    asked by Amit Daryanani · answered by Jayshree Ullal

    2 min read6 chapters

    Detailed Narrative

    01

    AI Fabrics and Innovation

    Arista's AI fabrics momentum now includes over 100 cumulative customers, leveraging innovations like Smart System Upgrade (SSU), Multipath Reliable Connection (MRC), and SRv6 for lossless, high-performance AI networks. The 7800 platform is key for distributed scale-across applications, with the Scale-Across switching and routing TAM projected at $15 billion to $20 billion by 2030. The Scale-Across use case is expected to be approximately 30% of Arista's overall AI target of at least $3.6 billion in 2026.

    02

    Supply Chain Improvements

    The company has made significant strides in addressing industry-wide supply chain challenges🌐, including hiring a new global operations executive, partnering closely with key suppliers, and tripling multiyear purchase commitments to $9.7 billion by the end of Q2 2026. Efforts include securing memory supply into 2027 across DDR4, DDR5, and NAND, improving PCB and optics capacity within a 12-month window, and establishing a liquid cooling supply chain for next-gen AI infrastructure. Manufacturing and distribution capacity have also been increased with three contract manufacturers and three distribution facilities.

    03

    Financial Performance Highlights

    Arista achieved its first $3 billion revenue quarter in Q2 FY26, growing 37.7% year-over-year. Non-GAAP diluted EPS was $1.02, up 39.7% year-over-year. Operating income reached $1.5 billion, representing a 49.9% operating margin. The company generated $1.1 billion in operating cash flow. International revenues contributed $697.8 million, or 23% of total revenue, up from 15.5% last quarter.

    04

    Strategic Market Positioning

    Arista is well-positioned for the AI super cycle, with its EOS architecture providing foundational reliability and optimal compute utilization for diverse AI models and accelerators. The company emphasizes its system-wide approach over white-box solutions for complex AI networking needs, particularly in scale-out and scale-across use cases, citing operational excellence, advanced AI features, and reliability as key differentiators. This approach helps customers manage the scarcity of power, space, and compute.

    05

    Core Business Strength and Growth Drivers

    Beyond AI and campus, Arista expects growth in its core data center front-end and routing adjacencies. The enterprise team has shown tremendous growth, contributing significantly to the incremental $1.1 billion revenue raise for FY26. Routing is seen as an adjacency for edge routing and DCI/scale-across use cases, addressing an incredibly large and growing TAM. The company anticipates contributions from all product sectors to its increased guidance.

    06

    Co-Packaged Optics Strategy

    Arista is focused on open Co-Packaged Optics (CPO) solutions, which it believes will allow for multi-vendor interoperability. The company expects trials for open CPO in 2027 and production in 2028-2029, while acknowledging that pluggable optics and copper will remain dominant in the near term. Arista is not in favor of proprietary CPO implementations, advocating for an open interface with socketed optical engines and pigtail fibers.

    AI-generated summary of the company’s earnings call. Not investment advice.