Is This Under-the-Radar AI Stock Worth a Look Before Its Next Earnings Report?

When investors think of artificial intelligence (AI) stocks, Arista Networks(NYSE: ANET) isn’t the first name that comes to mind. That’s understandable. Compared with giants like Nvidia and Alphabet, Arista’s business is significantly smaller, and it hasn’t commanded the same attention. Since October, the stock has struggled to gain traction, giving the market little reason to take notice.

Yet this relatively low-profile AI stock may be worth buying before its next earnings report, expected in early August. The catalyst? Not what happened after its first-quarter results in early May, but what didn’t happen.

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Contrary to what many expected, Arista shares didn’t rally following its Q1 beat. Instead, they dropped sharply, despite the company topping both earnings and revenue estimates alongside an upward revision to its Q2 2026 revenue guidance. The problem? Arista’s guidance increase fell short of what investors and analysts had quietly priced in. Those lofty expectations were already baked into the stock.

That misstep is unlikely to repeat, say many market watchers.

First, a quick primer: What is Arista Networks, and why is it considered an AI stock?

At its core, Arista is a networking company—routers, cables, and specialized software designed to maximize hardware performance. This happens to be one of the biggest bottlenecks in AI today. The company’s solutions directly address that bottleneck, which helps explain why first-quarter revenue surged 35% year over year, extending and accelerating last year’s growth trend.

But management committed an almost unforgivable sin for a tech company these days: it openly admitted that demand for its technology is outstripping its supply of components and materials. That supply crunch is crimping profit margins. Arista now expects full-year operating margins of only 46%, down from an average of just above 48% last year.

Investors panicked. In hindsight, that reaction looks overdone.

While this year’s margins will likely be lower than last year’s—and the stock was richly valued for perfection—the top-line growth analysts expect (29%) remains impressive. Earnings growth of 22% is projected for 2026, with similarly solid improvements in sales and profit next year.

Perhaps more important for would-be buyers: the shock from that disappointing guidance appears to have fully dissipated. When Q2 results arrive in early August, the bad news is already priced in—and then some.

Analysts seem to agree. Despite the recent bearish drama, the vast majority still rate ANET a strong buy, with a 12-month price target of $188.42—nearly 20% above the current price (as of this writing). Not a bad starting point for a new trade.

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James Brumley has positions in Alphabet. The Motley Fool has positions in and recommends Alphabet, Arista Networks, and Nvidia. The Motley Fool has a disclosure policy.

This article was originally published by The Motley Fool.