The AI Supercycle Needs More Than Just Chips. This Growth Stock Builds the Network That Connects Them.

There are plenty of artificial intelligence (AI) stocks grabbing investors’ attention these days, and many of them are semiconductor designers and manufacturers. But while the AI data center boom is driving many chip stocks higher, there are other ways to play the artificial intelligence supercycle.

Arista Networks(NYSE: ANET) is a prime example. The company’s networking equipment and software help the biggest tech companies run their AI data centers — and it could benefit from infrastructure spending for years to come.

Image source: Getty Images.

Why Arista stands out in the AI crowd

Arista Networks sells data center networking hardware and software that enables tech companies to manage their data center systems. That’s become a very good business to be in, considering that the largest technology players are spending an estimated $750 billion on AI infrastructure this year alone.

While Arista has most of its business tied to a handful of large companies — including Microsoft and Meta — it’s somewhat protected from this concentration. Once a company begins using Arista’s hardware and software, it becomes difficult to switch. AI data center systems are complex and costly, and hardware and software upgrades are expensive.

What’s more, most of its customers don’t want to switch, with independent data showing that 94% of them are strongly positive about Arista.

Arista is in great financial shape

Arista reported its first-quarter 2026 results in May, and investors were initially disappointed by the management’s gross margin guidance of between 62% to 64% for 2026. Arista’s gross margins for 2025 were 64.1%, but investors were hoping they would expand further.

The slight margin decline comes as memory prices have skyrocketed over the past few years due to a supply shortage driven by AI data centers. Arista uses memory in its hardware systems, so it’s feeling the pricing pressure too. It’s worth noting that this isn’t an Arista-specific issue. Apple just raised prices on many of its devices due to rising memory costs.

The bigger picture — and what potential investors should focus on — is how Arista is benefiting from surging AI data center demand. The company’s sales jumped 35% to $2.7 billion in the first quarter, and non-GAAP (generally accepted accounting principles) earnings per share rose nearly 32% to $0.87.

What’s more, Arista has no debt, it generated $1.64 billion in free cash flow in the first quarter, and management expects sales to rise 28% in 2026 to $11.5 billion.

In short, Arista is in great financial shape and continues to benefit from a rapidly expanding AI market.

If there’s one concern for potential buyers of Arista Networks, it’s that its stock currently has a trailing price-to-earnings (P/E) ratio of 56, above the tech sector average of about 41.

But with strong sales and earnings growth, high gross margins, and strong free cash flow, there’s little to worry about with Arista.

Chris Neiger has positions in Apple. The Motley Fool has positions in and recommends Apple, Arista Networks, Meta Platforms, and Microsoft. The Motley Fool has a disclosure policy.