Mizuho analysts said Alphabet’s (GOOGL) latest earnings report showed the company is a “clear winner” in the ongoing AI boom.
“The QTR was that good and enough of a positive surprise to change many naysayers, skeptics and shorts opinions in my opinion,” they wrote.
“Add to that lower operational growth and messaging per mgmt. “If you really manage spending and investments towards AI in moderation in other areas, you get a bullish scenario of higher revenue growth and margin expansion,” the analysts said.
However, according to analysts, there is another, less popular “clear winner” in the current landscape.
The analysts think in concrete terms Arista Networks (NYSE:) as another well-positioned AI play, despite recent skepticism following a sell-side downgrade based on predictions of future market share losses for Nvidia (NASDAQ:) as they improve their networking technology in combination with GPU-accelerated computing.
“ANET has two huge cloud customers that account for the lion’s share of that core data center segment: MSFT and META,” the analysts noted.
“Guess who just talked about higher capex and longer into CY25? META and MSFT,” she added.
ANET shares rose 4% following Meta Platforms’ (NASDAQ:) announced guidance on capital expenditures for AI investments (capex), and analysts believe there is further upside potential for the stock, which will lead to the May 7 win.
However, they also cautioned that not all of this capital growth was expected to directly benefit ANET, nor should there be any expectations for a significant upward revision to guidance.
Generative AI investments in Ethernet networks are seen more as a 2025 and beyond event, suggesting a gradual build-up of momentum rather than an immediate acceleration in coming quarters, analysts explain.
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Meanwhile, Arista is mainly viewed in terms of its growth potential for 2025 rather than 2024. A recent downgrade to ‘Sell’ has increased concerns that the consensus estimate of 15% annual growth will not be exceeded, the analysts said.
“ANET has talked about approximately $700 million in AI revenue next year as Ethernet standards for AI networking equipment expand,” 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, and mission-critical deployments. I simply do not see META and MSFT materially expanding and expanding the capacity of the AI data center, which does not benefit ANET.”
“ANET at $260 feels to me like a gift for those who buy and hold key AI winner stocks,” the analysts concluded.
