Shares of client-to-cloud networking services provider Arista Networks (NYSE:ANET) are declining around 4% today. Indeed, ANET stock is down on news out of Nvidia’s (NASDAQ:NVDA) earnings report and conference call.
Specifically, Nvidia referenced in its earnings call yesterday evening that it may be looking at bringing “large-scale AI to Ethernet-only data centers.” This comment suggests Arista and its competitors may not have the hold on their core networking businesses that they thought they had.
Nvidia has proven to be a leader in producing some world-class hardware and software. Accordingly, a pivot into the networking space could have ripple effects for specific companies like Arista.
Let’s dive more into what Nvidia discussed amid its earnings — and what to make of this market-shifting move.
ANET Stock Drops on New Nvidia Ambitions
Nvidia’s potential move into networking is being seen by some experts as a natural vertical move for the maker of chips and other processing units. By providing such products and services to its existing hyperscale cloud customers, Nvidia’s total addressable market potential could increase substantially — of course at the expense of companies like Arista.
That said, it appears any sort of move into this space is still in its preliminary stages. After falling as much as 8% today, ANET stock has regained some footing in afternoon trading as investors price in the probabilities of a true shake-up in this space. What’s more, it’s always possible that some partnership could arise between the two companies, if Nvidia is serious. There are simply too many unknowns right now.
Still, commentary from analysts at JPMorgan and Rosenblatt suggests that Wall Street is souring on Arista and its overall business model. Rosenblatt analyst Mike Genovese just reiterated a “sell” rating and a $220 price target for ANET stock, which currently trades hands at more than $300 per share. That’s a rather steep potential decline that certainly prices in some major disruption from the likes of Nvidia.
We’ll have to see how this all turns out. But for now, it’s clear investors are taking a much more cautious approach to Arista than they were yesterday.
On the date of publication, Chris MacDonald did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
