Arista Networks Soars as Cloud and AI Infrastructure Demand Fuels Growth
In a challenging quarter for many active managers, Giverny Capital Asset Management pointed to a clear winner in its portfolio: Arista Networks (NYSE: ANET). The firm's fourth-quarter 2025 investor letter, released this week, detailed a tough period where the fund's 0.01% return lagged the S&P 500's 2.66% gain, attributing part of the struggle to an underweight position in the mega-cap tech stocks dominating market momentum. However, Arista emerged as a significant bright spot, benefiting from multiple structural tailwinds.
Arista, a leading provider of high-speed cloud networking solutions, reported blockbuster third-quarter results in 2025, with revenue surging 27.5% year-over-year to $2.3 billion. This performance exceeded analyst expectations and underscored the company's critical role in building the infrastructure for artificial intelligence and hyperscale data centers. The stock closed at $141.74 on January 30, 2026, boasting a market cap nearing $178.5 billion and reflecting a 27% gain over the past year.
"While the market's obsession with pure-play AI names has created a disconnect, companies like Arista that provide the essential plumbing are seeing tangible, massive growth," the Giverny letter noted. The firm acknowledged that while it sees potential in Arista, it believes other AI-centric stocks might offer different risk-reward profiles. The letter also revealed that hedge fund interest in Arista is growing, with 92 funds holding the stock at the end of Q3 2025, up from 81 the prior quarter.
The surge is not occurring in a vacuum. Analysts point to a perfect storm of demand: cloud providers are accelerating capital expenditure to support AI workloads, enterprise networks are undergoing mandatory upgrades for speed and security, and a broader "onshoring" trend in tech manufacturing is bolstering demand for domestic data center gear. Competitors like Cisco are facing increased pressure as Arista's software-driven architecture gains favor with major cloud players.
Investor Reactions:
"Finally, some sanity in the market," said Michael Torres, a portfolio manager at Horizon Advisors. "Arista's story is about execution on fundamentals—revenue, margins, guidance—not just AI hype. They are the pick-and-shovel play that's actually delivering the goods."
"This is a classic case of the market catching up to reality," commented Sarah Chen, a technology analyst at Fairview Research. "The networking layer is the unsung hero of the AI boom. Arista's deep relationships with hyperscalers like Microsoft and Meta provide a moat that is often underestimated."
"It's still overvalued given the cyclical nature of cloud capex," argued David R. Klein, an independent investor and frequent market critic. "This run-up feels frothy. Everyone is piling into anything with 'AI' or 'cloud' in the description, ignoring the inevitable slowdown. Giverny's own caution about other opportunities tells you all you need to know."
"As a long-term holder, this validates the thesis," said Priya Sharma, a private investor. "The quarterly numbers are great, but the strategic position is what matters. They're not just selling switches; they're enabling the next decade of computing."
The broader context for Giverny Capital remains complex. Year-to-date, the fund's 12.58% return, while solid, trails the S&P 500's 17.88%, highlighting the ongoing pressure on strategies that deviate from the concentrated gains in the largest technology names.