Arista Networks, Inc. (ANET): Are Hedge Funds Now Recommending This Edge Computing Stock?

We recently compiled a list of Edge Computing Market Size and 7 Best Stocks to BuyIn this article, we will examine how Arista Networks, Inc. (NYSE:ANET) stands relative to other stocks in the edge computing sector.

What is Edge Computing?

The information technology sector has consistently outperformed investor and analyst expectations in 2023, and that trend looks set to continue this year. This impressive performance can largely be attributed to significant advancements such as the rise of artificial intelligence (AI) and generative AI, which have propelled tech stock prices to unprecedented highs. Of course, AI isn’t the only area revolutionizing the tech space. Edge computing is another compelling area of ​​growth and investment. Also known as mobile edge computing (MEC) or multi-access edge computing, edge computing aims to bring computing power closer to where data is generated, rather than relying on a centralized cloud-based system. Simply put, edge computing involves moving some of the storage and computing capacity from a central data center to locations closer to the data sources.

By keeping compute capacity close to users, devices, or data sources, edge solutions provide benefits such as reduced latency, increased bandwidth, local device processing, and data offloading. For example, smart speakers perform minimal computational work, sending requests to vendor-owned servers. With edge computing, smart speakers could process a user’s request entirely on the device itself. Gartner, in its March 2024 Market Guide for Edge Computing, states:

“By placing data, data management capabilities, and analytics workloads at optimal points, all the way to the endpoint, enterprises can enable more real-time use cases. Additionally, the flexibility to move data management workloads up and down the continuum from centralized data centers or the cloud to the edge will enable better resource optimization.”

Edge Computing with Internet of Things and Artificial Intelligence

The automotive industry is a prime example of the rapid advances driven by the integration of edge computing and artificial intelligence (AI) in recent years. As vehicles evolve to incorporate self-driving capabilities, these technologies have become essential for effective decision-making and real-time responses. For example, Tesla leverages extensive real-world driving data to refine its AI algorithms for autonomous driving. The rollout of the EV maker’s Full Self-Driving (FSD) beta software to more drivers highlights its performance in real-world conditions, with the vast amount of visual data collected during these drives improving the company’s AI training process.

Additionally, the advent and adoption of 5G, the fifth generation of cellular network technologies with significantly higher bandwidth, is accelerating the growth of the Internet of Things (IoT) and facilitating the widespread adoption of edge computing. With 5G networks enabling ultra-fast speeds and a greater number of connected devices, data volumes are expected to increase dramatically. By 2025, every connected person will interact with digital data at least once every 18 seconds, largely due to the billions of IoT devices that are expected to generate over 90 zettabytes of data by then.

Edge Computing Market Expected to Reach $217 Billion by 2032

According to a report by Fortune Business Insights, the global edge computing market is valued at $15.96 billion in 2023 and is expected to grow from $21.41 billion in 2024 to $216.76 billion in 2032, at a CAGR of 33.6% over the forecast period. This growth is fueled by the increasing adoption of edge devices, ranging from IoT devices such as mobile POS kiosks and smart cameras to IT infrastructures that enable faster and real-time data analysis at the source. On the other hand, PwC predicts that the global edge data center market will nearly triple from $4 billion in 2017 to $13.5 billion this year. This expansion is driven by the potential of locally located data centers to reduce latency, manage intermittent connections, and facilitate data storage and computation close to end users.

With these details in mind, let’s take a look at some of the best edge computing stocks to buy now.

Our methodology

For our list of the best stocks in the edge computing sector, we started by sifting through ETF holdings and online rankings to assemble a preliminary list of 15 stocks. We then scoured Insider Monkey’s Q1 database, which tracks 920 elite money managers, and selected the top seven stocks most widely held by hedge funds.

Why do we care about the stocks that hedge funds are heavily invested in? The reason is simple: Our research has shown that we can outperform the market by mimicking the best stock picks of the best hedge funds. Our quarterly newsletter strategy selects 14 small- and large-cap stocks each quarter and has returned 275% since May 2014, outperforming its benchmark by 150 percentage points (see more details here).

Arista Networks, Inc. (NYSE:ANET)

Number of hedge fund holders: 69

Arista Networks, Inc. (NYSE: ANET) is an American computer networking company headquartered in Santa Clara, California. The company specializes in the design and sale of multilayer network switches that enable software-defined networking for large-scale data centers, cloud computing, high-performance computing, and high-frequency trading environments.

In a recent report, Samik Chatterjee of JP Morgan maintained his Buy rating on Arista Networks, Inc. (NYSE:ANET), with a price target of $335. Additionally, Arista Networks, Inc. (NYSE:ANET) received a Buy rating from Tim Long of Barclays in a report issued on May 9.

According to Insider Monkey’s Q1 database, 69 hedge funds were bullish on Arista Networks, Inc. (NYSE:ANET), up from 64 funds in the previous quarter. Point72 Asset Management, led by Steve Cohen, was one of the company’s largest shareholders, holding 987,926 shares valued at $286.47 million.

In an ever-changing technology landscape, Arista Networks (ANET) stands out as an attractive investment opportunity. Specializing in data center hardware and cloud networking solutions, ANET is making waves in the industry with its innovative approach and consistent financial performance. The company is well-positioned to expand its presence in the $45 billion Ethernet switch market. Arista’s switches stand out for their efficiency in interfacing with advanced chips compared to competitors like Cisco. One of the key indicators of ANET’s strength is its impressive financial performance. The company has consistently exceeded market expectations, with better-than-expected quarterly results becoming the norm. Over the last four earnings releases, ANET has beaten consensus EPS estimates by an average of 15%, demonstrating its strong operational efficiency and strategic execution.

Additionally, Arista Networks has been riding the AI ​​hype, further strengthening its growth trajectory. The company’s recent quarterly results underscore this momentum, with sales reaching $1.5 billion in the first quarter, marking a remarkable 16% increase from the prior year. This exceptional sales growth, coupled with the company’s ability to consistently generate strong earnings, reflects ANET’s resilience and agility in navigating the dynamic technology landscape. The company recently raised its revenue growth guidance for the current fiscal year (FY24) to a range of 12% to 14%, signaling confidence in its future prospects. This upward revision sent ANET shares higher following the earnings release, further strengthening investor sentiment about the company’s growth potential.

The company announced a new $1.2 billion share repurchase plan, underscoring its confidence in generating sustainable returns for investors.

ANET as a whole ranks 6th on our list of the best Edge Computing stocks to buy. You can visit Edge Computing Market Size and 7 Best Stocks to Buy to see other edge computing stocks that are on hedge funds’ radar. While we recognize ANET’s potential as an investment, our conviction lies in the belief that AI stocks have more promise to deliver higher returns, and in a shorter time frame. If you’re looking for an AI stock that’s as promising as ANET but is trading at less than 5x earnings, check out our report on the cheapest AI stock.

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Disclosure: None. This article was originally published on Insider Monkey.