Anet (ANET) Q3 2026 earnings call transcript

Anet (ANET) held its earnings call for the third quarter of fiscal 2026 on 3 November 2026. What follows is my machine transcription of the company's public webcast, made on 3 November 2026, and not the company's official text.

A machine mis-hears names and numbers, so where one reads oddly, the webcast is the record. This recording is not split by speaker.

Transcript

- Welcome to the third quarter, 2026 Ariffa Network Financial Results Earnings Conference Call. During the call, all participants will be in a listen-only mode. After the presentation, we will conduct a question-and-answer session. Instructions will be provided at that time. If you need to reach an operator at any time during the conference, please press the star key followed by zero. As a reminder, this conference is being recorded and will be available for replay from the Investor Relations section on the ERISTA website following this call.

Mr. Rudolph Arajo, ERISTA's Head of Investor Advocacy, you may begin. Thank you, Regina. Good afternoon, everyone, and thank you for joining us. With me in today's call, Ajeshi Laul, a Risten Networks Chairperson and Chief Executive Officer, and Chantel, right upper, is the Chief Financial Officer. This afternoon, Risten Networks issued a press release announcing its fiscal third-quarter results for the period entering September 30, 2026. If you want a copy of this release, you can find it on our website.

During the course of this conference call, Risten Networks management will make forward-looking statements, including those relating to our financial outlook for the fourth quarter of the 2026 fiscal year, longer-term business model and financial outlooks are 2027 and beyond. Our total address will market and strategy for accessing those market opportunities across AI, campus, data center, and other segments. Inventory levels and management lead times, purchase commitments, components, supply and product innovation, which are subject to the risk and uncertainties that we discuss in detail in our documents filed with the FCC, specifically in our most recent form, 10Q and form 10K, and which could cause actual results to defer material from those anticipated by these statements.

These forward-looking statements apply as of today, and we should not rely on them as representing our views in the future. We undertake no obligation to update these statements after this call. This analysis of our Q3 results and our guidance for Q4-2026 and F5-2027 is based on non-gap financial measures and excludes stock-based competition expense, intangible asset amortization, and other non-recurring items, as the income tax effect of these non-GAAP exclusions, including the recognition of direct access tax benefits associated with stock-based awards.

A full reconciliation of a selected GAAP to non-GAAP historical results is provided on our earnings release. A reconciliation of a FY27 non-GAAP guidance to the most directly comparable GAAP measures is not available without unreasonable effort. With that, I will turn the call over to Jay Shree. - Thank you, Rudy, and welcome, everyone, to our third quarter 2026 earnings call. Arista just delivered a standout quarter of 3.66 billion in revenue, which is translating to our annual growth of 58.5%.

This marks our largest ever year-of-year revenue growth in the history of being a public company. Before we dive into the financial specifics, I would like to emphasize our rapid Arista 2.0 success. a strategy we embarked upon just three years ago. It has generated meaningful customer outcomes to become the central network nervous system for us. In the 2000 era, the industry had accepted a status quo plagued by fragile, overly complex, disparate, and vulnerable operating systems. A risk to pioneer the universal cloud network and the AI and ACE spine architecture based upon our rock solid high quality foundation of our differentiated EOS.

that one network operating system with a published, subscribed state and data-driven foundation has governed us with five A's, agile security, automation, availability, analytics, and AI principles. By extending our single EOS operating system from the data center, all the way from the universal spine to many forms of edge leaf functions, we deliver structural and secure network harmony. Our Institute Auto Transformation from data centers The centers of data can be characterized as the age of network intelligence, learning from vast repositories of stream data.

It has driven our strategy across locations, be it client, to branch, to campus, to data to cloud and AI centers for our customers. Based on our network data lake architecture, we offer our customers automated and conversational troubleshooting agent take companions. Devoid of manual hunting through text heavy logs Our systems proactively begin identifying and isolating issues for networked workloads, workflows, and work streams. In 2026, the network-centric acceleration is well on the way. Our customers have increasingly coalesced a back-end and the front-end of AI and data centers.

Erister has long championed standards-based ethernet. Customers have welcomed our open approach to modernizing cloud campus data centers, when centers and now AI centers with a lower total cost of ownership. Recently, we were recognized with the leader status from Forrester for the highest strength of innovation and data center portfolio. We were also recognized by Gartner Magic Coordinate Leadership for campus, Wired and Wireless, and data center segments. As agent to AI models increase in parallelism, compute diversity and density, we have the choice of many more training and inference accelerators.

The industry we believe is shifting from compute centric vertical stack to a holistic network centric approach. Arista is committed to unleashing and breaking down the barriers between compute and networking. Arista customers can now construct an open network platform capable of handling heterogeneous models and diverse accelerators at scale. Our ethylene portfolio of at least 25 switches for scale up, scale up, and scale across is optimally designed to improve XPU utilization, job completion time, and token latency for these intense training and inference workloads.

In October of 2026 at the Open Compute Project Conference, Arista showcased our RAC scale up designs partnering closely with several AI accelerators infused with our Arista network diagnostics layer. based on eSUN ethernet for scale-up rack options. These include orthogonal designs, cable intensive back lanes, and heterogeneous cross-rack designs, co-designed with many of our partners, including ARM, Microsoft Maya, AMD's Helios, Qualcomm, Metas MTIA, and many more ahead. We expect scale-up trials to begin in 2027, driving ethernet to larger radix of 126 to 144 within a rack, and across a thousand across racks with production expected for scale up in 2028.

We are witnessing the migration from highly centralized training compute to disaggregated and distributed inference, pre-fill and decode, demanding much more intelligent networking and co-location of compute, storage and KV cache resources rather than simply focusing on raw feeds and speeds and flops of compute. A well-designed network is becoming a foundational cornerstone for optimal token efficiency. A risk is decades of EOS engineering in both multi-planar and distributed model routing at scale, be it ARP, address resolution protocols, or fifth tables, forward information-based, or access lists with rapid reconversions comes to the rescue.

Our ethylene products are inherently designed to actively understand parameters at a deep level, including latency and bandwidth profiles of multi-tenancy to intelligently steer workloads for optimal placement between local and remote domains. The need for visibility into ports, packet queues, flows, buffer utilization and part latency across the entire scale-out and scale-across fabric validates real-time AI system level performance to avoid idling of precious compute cycles. It assures immediate and network-wide insight to the root cause, as well as rapid recovery off the AI system with smart system upgrades across millions of accelerators.

When we initially began this transformational AI journey, we spoke about four or five AI customers with approximately 50 to 100,000 in video GPUs. And in fact, we were largely staring at a proprietary network cycle such as Infinipant. In 2026, we are in a super cycle of AI, having already surpassed 100 ethylene customers. By the end of '27, we are forecasting greater than 10 gigawatts of deployment across 10 or more different types of compute accelerators. What a stark inflection in just three years.

Central to this AI Supercycle is also the expansion of Arista Ava, our autonomous virtual assist, to support efficient AI in the enterprise By providing that open programmable interface within EOS and utilizing the model context protocol MCP, Ava allows emerging AI agents to reason, to interact with the network stack and perform advanced multi-domain event correlation across the entire enterprise. With exponential rise of generated AI attacks and the ever-increasing cyber threats, securing the network is key and integral and our responsibility.

I would like to invite Kenduda, a founder, president, and CTO to shed some light on this problem, Ken. - Thanks, Jay Shree. It's hard to overstate the impact of AI on networking. First, the good news, Ava, which has risked this autonomous virtual assistant. Fueled by real-time data, Ava is incredibly powerful. It seamlessly navigates networking and security infrastructure from campus to WAN to data center, to cloud continuously monitoring and troubleshooting, isolating root causes without manual labor-intensive tasks, having seen what Ava can do.

I can't imagine managing my own infrastructure without it, and I expect many of our customers will feel the same way. The bad news, of course, is the massive challenge AI poses for us and our customers by discovering and exploiting security vulnerabilities. This threat landscape demands secure and robust networking. Over the past few months, we've been collaborating with Anthropic, Google, OpenAI, and many others to integrate new AI-enabled security capabilities from frontier models into our existing software security pipeline.

We are being invited early as a key infrastructure provider into partnerships like Project Glassway, holding AI-driven vulnerability discovery and assessment into our established security vulnerability management process. True network security has become a must-have, not a nice-to-have, and a RISTAs EOS operating system is the ideal architectural foundation, based on four key principles. First, a single high-quality operating system. RISTAs maintain one of the lowest CVE counts, less than 100 in the industry, over the last two decades, while others are rising exponentially, In part, the simple fact that multiple networking operating systems tend to have more vulnerabilities than just one.

Second, limiting vulnerability impact through process isolation. EOS keeps each software agent, management plane, work control plane, architecturally separate from each other, and also from hardware forwarding, so traffic keeps moving even if there is a defect in one component. EOS's state sharing architecture also resists lateral movement, so a defect in one component Typically, cannot be exploited to attack other agents within the switch. Third, we provide a seamless upgrade process. Process isolation also means that we can ship a targeted fix to the affected component and install the fix without a maintenance window or network disruption.

And fourth, delivering a compliance dashboard to stay current. When a security advisory lands, the risk of cloud vision brings real-time visibility that turns a stressful advisory day into a manageable one. In addition to providing secure switches, we also provide zero-trust networking or ZTM technology to help our customers build secure infrastructure. I'd especially like to highlight Mapfro Segmentation Services, or MSS. A ZTM feature allowing for dynamic security enforcement, preventing undesired interactions among users, devices, and applications. Second, we provide network detection and response or NDR services that profile, analyze, and proactively detect sophisticated security threats.

And finally, once workload traffic leaves the confines of the local data center, it becomes even more vulnerable to malicious actors. So we offer protection with wire-stayed ubiquitous link and tunnel encryption native in every port with zero performance degradation. I hope this was a helpful summary of how Our risk is helping customers take advantage of AI, while improving security to meet the new challenges. Back over to you, Jay Shree. Thank you, Ken. It was useful for me too.

With the risk as uncompromised GTN approach, we can systematically address the security hazards and parabolic attacks. Our CVE count, our vulnerability count, is often 10 to 50 times better than alternatives. Our customer momentum this year has been significant in the enterprise, in the providers, across data center, campus and AI because they are addressing security proactively. I would like to invite Todd Nightingale, our president and chief operating officer to describe more about this. Over to you, Todd.

Thanks, Joshua. We're seeing phenomenal growth across our enterprise business driven by customers building mission critical networks which benefit from a risk of industry leading quality and reliability. And the entire industry responds to AI powered attack exposure. Customers are motivated by the fact that keeping their infrastructure current with security updates will protect, segment, and defend against vulnerabilities beyond the network. ARISTA won a strategic deal at an Asian web services company as they shifted their focus strategically onto speed, scale, and resilience in the new AI era.

Reliability was the key to the engagement as their teams were frustrated by longstanding quality issues with their existing vendor. ARISTA was able to demonstrate reliability and scalability while leveraging standards based technology and a powerful EVPN via flan architecture on our 100 and 400 gig platforms, this deployment will operate at the front end for their AI deployments moving forward. In the healthcare sector, leading hospitals are selecting a risk for strategic data center deployment. One important hospital group chose a risk that is following an exhaustive zero trust networking evaluation.

Their primary business goal was to protect sensitive patient data through advanced network segmentation while enabling seamless integration to cloud environments. Arista secured this win by delivering an automated, high-performance fabric that perfectly aligned with their trust-nothing, verify everything security mandate. By centralizing routing on Arista's R3 Spines, we've provided a powerful stream-blind layer for traffic management tailored to modern healthcare workloads with a robust lease-spine topology. We deployed cloud vision as a service alongside the Arista to ABD framework for cloud-based automation and deep visibility.

And by integrating ERICSA's segmentation service MSS, the customer can now dynamically automate the entire system. In the hospitality sector, an award-winning regional resort and casino selected ERICSA to modernize its expanding operations. Realizing their legacy network was a bottleneck for innovation. They architected a truly unified standards-based architecture across their data center and campus environments to support new guest experiences and rapidly scale their services. Erest is routing and switching platforms alongside campus access switches are delivering quality and reliability key to performing in mission critical applications like they're demanding casino gaming floor network.

They utilize cloud vision and they need to automate device provisioning and gain the deep real-time visibility required to optimize network performance. In all three of these examples, RISD's differentiated EOS provided unmatched quality and reliability and integrated seamlessly with their overarching security ecosystem partners. Additionally, our task delivered the flawless experience and peace of mind to de-risk these modern enterprise migrations to a RISD. 2026 has really been an exciting year building momentum across our entire enterprise business around the world in data center, campus, and AI buildouts.

Thank you, Tricia. - Thank you, Todd. Wow, that momentum is indeed unprecedented. I haven't experienced anything like this until you arrived. We are pleased with the RISTAs accelerated networking progress across all our sectors. Our commitment to fulfilling this accelerated demand in the second half of 2026 is really playing out well with our improved execution in supply chain partnering closely with our vendors. I want to give a special kudos to you and your entire manufacturing team, led by Eugenia, for the tireless work and progress despite the widespread industry-wide supply chain constraints and shortages.

With this backdrop, we are now increasing our annual guidance for the fourth time in 2026 to $13.3 billion, which represents a 48% annual growth. At Eristor, we find ourselves in a position to address this ever-increasing, total accessible market, not just available market, which now stands at north of 200 billion in 2030, therefore representing a multi-year growth opportunity for us. Our first look at 2027 guidance range puts us in the 38 to 40 percent range for growth annually to approximately $18.5 billion.

Within this envelope, we expect our AI fabrics target to be the fastest growing segment and to double to approximately $7 billion, while our cognitive campus represents a healthy growth of 60% much faster than the market to approximately $2 billion in 2027. We do live in exciting times as we harness the power of cloud and AI revolution. It has certainly surpassed my expectations as we exceeded our original $10 billion goal this year to enter revenue dollars in the teens for both 2026 and 2027.

We do so in the typical aristo way, bringing our unique combination of innovations, quality, profitability, efficiency, and zero debt, making our financials very pristine. Our results would not be possible without the cohesive, a risk in leadership and team, our elite customers and partners, and of course, our supportive shareholders. And with that, over to you, Chantel, to shed more light on our impressive financials. - Thank you, Jay Shree. This quarter, we delivered record-high revenue growth center IPO at 58.5%, partnered with robust operating margin above 49%.

At the same time, we invested a head of demand in R&D inventory and supply commitments to support the AI opportunity in front of us. Congratulations to the ERISTA team for being named to the S&P 100 in September, a great achievement within a short timeframe. Let's dive into the financial details. To start off, total revenues in Q3 were approximately $3.66 billion, up 58.5% year over year, and above our guidance of 3.3 billion. This significant growth was driven by our continued strength in both AI and enterprise customers.

International revenues for the quarter came in at $682.5 million or 18.6% of total revenue, down from 23% last quarter. This quarter of a quarter change was primarily influenced by a shift in the geographic mix of sales to our large global customers. Year over year, double digit growth was achieved in all three geographic segments. The overall gross margin in Q3 was 64% down from 65.2% in the prior year with supply chain efficiency working to partially offset product cost inflation and up from 63.4% in the prior quarter driven by end customer mix.

Operating expenses for the quarter were $545.3 million or 14.9% of revenue up from the last quarter of $411 million. Our R&D spending came in at $408.5 million 11.2% of revenue up from the last quarter at $278.1 million, where it continues to demonstrate its commitment and focus on network innovation with additional investment in liquid cooling, high rate of switching, and leaving AI software. Sales and marketing expense was $110.9 million or 3% of revenue down slightly from 3.6% of revenue last quarter, representative of the highly efficient or risk-to-go-to-market methodology.

Our G&A cost came in at $25.9 million or 0.7% of revenue, up slightly from $23.1 million last quarter, as we continue to focus on our critical corporate systems and processes. Our operating income for the quarter was $1.8 billion or 49.1% of revenue, demonstrating our ability to invest in innovation while expanding profitability. Other income expense for the quarter was a favorable $138.6 million, and our effective tax rate was 20.9%. Overall, this resulted in net income for the quarter of $1.53 billion or 41.9% of revenue.

Our diluted share number was 1.278 billion shares resulting in a diluted earnings per share for the quarter of a dollar and 20 cents, up significantly with a growth of 55.8% from 77 cents in the prior year period. now turning to the balance sheet. Cash, cash equivalents and marketable securities ended the quarter at approximately $14.4 billion up from from $13.3 billion at the end of Q2. Of the $1.5 billion stock repurchase program approved in May of 2025, $817.9 million remain available for repurchase in future quarters.

The actual timing and amount of future repurchases will be dependent on market and business conditions, stock price, and other factors. Now turning to operating cash performance for the third quarter, we generated approximately $1.2 billion of cash from operations. This was driven by a robust earnings performance coupled with an intentional inventory build to meet our growing customer demand. DSOs came in at 59 days down from 68 days in Q2 due to the timing of customer shipments and invoicing.

Our inventory turns dropped slightly from 1.7 and Q2 to 1.6 per quarter. We ended the quarter with $3.2 billion in inventory at from 2.5 billion last quarter. Inventory level fluctuations are expected to continue as we work through the balancing of components timing and availability. This could result in quarters of elevated inventory balances affecting the timing of cash flow from operations ahead of customer deployments. Our purchase commitments at the end of the quarter were $11.4 billion up from $9.7 billion at the end of Q2.

As mentioned prior quarters, this expected activity mostly represents purchases chips related to new products and AI deployments. Our total deferred revenue balance was approximately 6.8 billion dollars down from 6.9 billion dollars in the prior quarter. The majority of the deferred revenue balance is product related. Our product deferred revenue decreased $86 million sequentially versus last quarter. We remain in a period of ramping our new products, winning new customers and expanding new use cases including AI. These trends have resulted in increased customer specific acceptance clauses and an increase in the volatility of our product deferred revenue balances.

As mentioned in prior quarters, the deferred balance can move significantly on the quarterly basis independent of underlying business drivers. Accounts payable days were 48 days down from 57 days in Q2 reflecting the time they've inventory receipts and payments. Capital expenditures for the quarter were $100.7 million. Our construction work to build expanded facilities in Santa Clara remains on track and we expect construction to be completed in the coming months. As we look ahead, the momentum is strong.

We are grateful to our customers and proud of our team's continuous ability to rise to meet the demands of the networking industry. For the fourth quarter, we are forecasting a range of revenue between 3.9 and $4 billion. This position's fiscal year 2026 revenue, just over $13.3 billion at the midpoint. Our fourth quarter gross margin outlook is 63 to 64% and operating margin is between 48 and 49%. diluted EPS is forecasted to be between $1.26 and $1.30 with approximately $1.28 billion diluted shares.

And the effective tax rate is expected to be approximately 21%. Looking further ahead to 2027, the momentum continues. For fiscal year 2027, the revenue growth outlook is between 38 and 40%, equating to approximately $18.5 billion at the midpoint. margin continues to be in a range of 62 to 64 percent and an operating margin of approximately 49 percent. Our effective tax rate is expected to be approximately 21 percent. In closing, there is a lot to be excited about here at Arista.

We will continue to be focused on our innovation, execution, and delighting customers in the Arista way. Now back to you, Rudy, for Q&A. Thank you, Chantel. We will now move to the Q&A portion of the Arista earnings call. To allow for greater participation, I'd like to request that everyone please limit themselves to one question. Your line will be placed in mute after your question. Thank you for your understanding. Regina, please take it away. We will now begin the Q&A portion of the Arista earnings call.

To ask a question during this time, simply press * and the number one on your telephone keypad. If you'd like to withdraw your question, press *1 again. Please pick up your handset before asking questions to ensure optimal sound quality. Our first question comes from the line of Michael Ng with Goldman Sachs. Please go ahead. Good morning. Thank you very much for the question. I wanted to ask about your comment around the greater than 10 gigawatts of deployments across 10 plus compute accelerators for next year.

Could you just talk a little bit about whether that is an industry number or an aristospecific number in terms of those deployments and how does Does the diversification of compute potentially create more opportunities for ERSTD networking relative to just having a handful of compute suppliers? Thank you very much. Yeah. Thanks, Michael. As you know, I think much of AI, even in our world, started initially being compute-centric, and we're seeing that change to network-centric. And so as part of the accelerated network strategy, we are supporting three types of AI fabrics, scale up, scale up, and scale across.

So our guess is by the end of '27, we will deploy largely in '26 and '27 is where the exponential ramp happened across or greater than 10 gigawatts. Now, much of that gigawatt may be new, but remember in scale across, we can also have existing gigawatts being deployed. So we're talking about new distributed 10 gigawatts, but they may already be multiple gigawatts deployed across. So the rationale here is while we are new to scale up, we are touching a variety of XPUs and scale outs and scale across across the rack and across data centers.

And we already know with our scale across, we are touching multiple XPUs, four or five of them. With the advent of scale up, we will add another five in 2027. - Our next question will come from the line of Mita Marshall with Morgan Stanley. Please go ahead. - Great, thanks and congrats on the quarter. I guess just, Jay Shari, if you could give an update just on how you see that mix of scale across and scale out and scale up, just as a mix of your business, clearly scale up nothing today.

I think last quarter you had said, you expected a third of the demand this year to be from scale across, just as you've continued to increase your guidance and as you look into 27, just what do you see those mixes being? Thanks. Yeah, I think in 27, Ahmed, thank you for the kind wishes. We've been working hard for this day. The scale up will still be in early trials, so I don't think there's a material number associated with scale up in 27.

I do think it could contribute in 28. So then that is, if scale up is virtually zero, then we're basically left with most of the use case being scale out and scale across. And as you've heard us say in the past scale across, we think will be at least a third. It'll probably go higher in 27. And so the split this year is roughly 70, 30. The split next year may be, I can't venture to guess, but I think the 70 may come down and the 30 would go up when it comes to scale across, because it's a very strong use case for us.

A risk that's highly differentiated without 7800 scale across platform. And unsurprisingly, the word scale means a lot to us there and our customers, scale for security, scale for performance, scale for reliability, and there's just no room for error when you're connecting millions of XVUs. And we feel very comfortable that these are too strong with use cases. I also think it'll fuel, I mean a lot of this is back in AR fabric, we will come back to revisit the question of front end as well as we move to more inference and the line between back and front becomes thinner.

Our next question will come from the line of bin rightsist with Milius research, please go ahead. Hey, how are you doing, Jay Shree, pretty good quartering guide there. You've previously referred to potentially two 10% plus customers into the fourth quarter. Do you mind talking about whether they're landing in that range and what the use cases are for and if you're excited about those customers still and into 27? Thanks a lot. Yeah. Yeah, yeah, yeah. I guess diversity is the name of the game and the theme today, right Chantel?

That's right. We have diverse accelerators, we have diverse models, we want to have diverse 10% customers too. So as we said before, you know, our dearest ones are M&M, we fully expect our top prior 10% customers to continue to be with us in 26 and we hope beyond. And we expect to add at least one, maybe two, and a lot of that depends on whether Todd and Eugenia can ship enough product. So we'll let them decide, and we'll give them all the way into December 31st.

- We'll take every day. So I'm feeling pretty good about at least three and maybe four. - Our next question will come from the line of George Nauter with Wolf Research. Please go ahead. - I guys, thanks very much. I was just curious about the big sequential jump in R&D. It was really, really significant. I'm just wondering if that included some one-time items. Also, is this the new run rate in R&D going forward? Any perspective there would be great.

Thanks a lot. - Okay, so over to you, Ken. Why'd you spend so much money this year? - Okay, so much new stock. The opportunity is humongous in AI. These AI accelerating systems are, we are successful with the hyperscaler AI companies depends on our ability to partner. Our ability to partner is based on our understanding of each of their unique requirements and constraints. And also, there's a new technology introduction around liquid cooling. This requires a major infrastructure upgrades and technology upgrades in our art.

So I think that's what's really driving the expansion is done in there. - Yeah, sorry, George. And just in your comment, is this new run rate? I'll still put the framework at, you know, anywhere between 9 and 11% as we work through. So some quarters like we've talked about, hit this range as we have specific investments, and so I would still keep it at 9 to 11. More to come as we guide next year in more detail.

But I noticed the prototype bill was very high this quarter. That's right because of all the opportunities in the hypersport area, I guess. Yeah. Thank you, George. Our next question will come from the line of Amit Darianani with Evercore ISI. Please go ahead. Yep, thanks a lot and congrats on a really good set of numbers over here. Jesse, you talked initially about the industry moving towards a more network-centric architecture. As customers deploy different type of accelerators, does ARISTA become involved earlier in designing the oral systems rather than connecting them afterwards?

And as you have to work with a more distributed, disaggregated compute network, does that change your networking content per deployment, I know you talked about 10 gigawatts, I'm just wondering, is the network intensity such a change as well? And then, maybe for Chantal, as you think about this, 38, 40 percent guide for 27, which is extremely impressive, can you just touch on your confidence around the supply chain execution to meet this demand, what's in the bag versus what soon needs to be closed?

Thank you very much.

Pamal, this is a very good question. I think until now, we've enforced our architecture mostly on scale-out and scale-across. And a lot of that had to do with distributed power, locations, moving to regional edge edges, a very software-defined type of network with the intensity like I described of packets, flows, performance, predictable latency, etc. As we start participating with new accelerators, we get a greater chance early in the cycle to see the behavior of these exact accelerators.

Two or three examples I'd like to highlight is our close work with cerebras, our work with Microsoft and Maya. These have been going on the last couple of years, and has allowed us to tune our software performance and maximize the I/O throughput, if you will. The recognition of those scale-up designs are still in the works, but they're already manifesting itself and scale-out and scale across. You bring up a very good point, not only in the actual work we're doing with these accelerators, but the aggregate impact it has on our network design in terms of scale performance and reliability.

Yeah, and then I think to part two here, question, Anna, and thank you for the kind words of the beginning, I think. So, I am confident in the guide, and I am confident in the supply chain. What makes me confident in the supply chain is internally telling you, hanging the team doing a fantastic job every day, being scrappy to make sure we can do what we need to do to deliver to our customers. And also have confidence in a lot of great conversations and agreements with some of our key suppliers.

And that's why you see our purchase commitments increasing because we have that confidence. So internally, externally confident parts visibility, you know, I think we have two quarters of visibility as we always have and we need them to the other two. But given our highly fungible portfolio, you know, we're pretty clear where to make that bet. So we're pretty excited about next year. Thank you. Our next question will come from the line. If Tim Long with Barclays, please go ahead.

Thank you. Maybe we could shift a little bit and talk about the campus and branch. Pretty good year this year in guiding it to 60 percent next year. Could you talk a little bit about kind of what's enabling you to grow so much faster than the industry and is this something that you see as a multi-year type of dynamic? Obviously you got strengthened enterprise data centers, but curious what else is helping this much higher than industry growth.

Thank you. Yeah, thanks for the question. In a lot of ways, I think the enterprise and smart business coming to us, ARISDA has always led the way in quality and reliability. And over the past few years, just practically every significant enterprise has shifted gears and really considered their campus networks, their branch networks, mission critical with the highest needs for reliability. This is only accelerated because of the glass weighing and meet those effects where people are really focused deeply, not only on providing the highest level of reliability, but being able to do that as a rapidly patch and adjust their infrastructure over time and the differentiation with EOS and the ability for RITSA software to be able to do this with practically no downtime with extremely, extremely high uptime, it's highly differentiated in the market and I really think that's the core of what's driving market share gains here.

I think the other thing that makes this an incremental process is that campus refresh cycles are pretty long, so even customers that understand the risk and advantage may take some time to adopt us simply because of this schedule in which they do appreciate and upgrade their gear, so I think we can expect this to be a multi-year cycle. Our next question will come from the line of David Boats with UBS. Please go ahead. Great, thanks guys for taking my question.

So maybe Chantal, one for you and I'll wrap two together in one question. Can you kind of help us understand sort of your purchase commitment dynamic and your deferred revenue dynamic against the strong revenue guide that you provided for 2027? So obviously we recognize that you're confident in the number, but you know, deferred revenue, I understand that it's volatile and it varies quarter to quarter. just help us understand how to think about that metric in the context of a 38 to 40% guide, particularly also with purchase commitments going up, you know, a couple of billion dollars substantially.

Yeah, thank you. Thanks, Dave. I think there's a few things. I don't know if they correlate directly, but they're all in purpose and designed to serve the customers as we need to exiting Q4 and into 2027. Purchase commitments, you know, from that perspective, there are some things additional and we added and now we have memory in there, a memory agreement which has So that's a multi-year agreement that you'll see as the queue comes out. And I think on the purchase committee side, you can probably expect that to go up a little bit more as we exit the queue for, you know, as we get ready for this 2027 guide we have.

As far as the deferred revenue, deferred revenue actually had the largest churn in and out and still remains flat and still delivered a 58.5% revenue for both quarter, which I think is a fantastic outcome. So there you're seeing, you know, you're seeing things exit again released and things to get both back to the deferred balance, which I think is a really healthy sign of the demand that's fueling that 38, excuse me, to 40% revenue growth next year.

So I think they're all related. Persians couldn't grow to serve that demand and the deferred staying flat to deliver that outcome to the P&L. And we're pretty excited to see how that continues through 2027. Our next question will come from the line of Simon Leopold with Raymond James. Please go ahead. Appreciate that. I wanted to get one quick clarification. And you gave us targets for 2027 for campus and AI. Just wanted to check on what the baselines are for 2026.

And the question was really on the topic that I think Andy's been vocal about. But your thoughts about the evolution of switching with the inclusion of either CPO or NPO, what does that mean to Arista? Thank you. Okay, just to clarify, the baseline upon 38 to 40% is the 26th guide we gave of 13.3 and 13.3. - Yeah, and within that AI is 3.5 and campus is 1.25. - Yeah, we're staying with the target numbers, 'cause we only know actuals after we ship everything into the year.

And to your second question on optics, optics is very integral to a risk of strategy. anti-bacial chinachis, architect, listen, breathe this. It doesn't mean we'd build everything, but we actually systematically put it together. We, first of all, strongly believe in copper when you can, and optics a few months, because they need to go beyond the one or two meter radius. The flexibility of pluggable optics and lasers is probably the most widely deployed and accepted. Andy was a pioneer of OSFP that gave us a very wide density of thermal limits and widely used, and now our new coherent optics LPO modules is something that goes long distance without requiring DFP.

And then to meet higher front panel density, we're very excited about extra strength pluggable optics that is being supported by over 150 vendors. So we think the world is going to remain in a very majority fashion on pluggable optics. Having said that, I think there's always room for complimenting the pluggables with a strong adoption at higher speeds to what we call near-packaged optics or open CPO. We don't want to build proprietary copackaged optics. And to solve these constraints, the risk has been pioneering this open CPO that instead of soldering components, we can use socketed optical engines and thick tail fibers to allow these modules to be pre-tested, et cetera.

So we are big fans of these. We think they'll come on to the market in the 28 to 30 times frame. It's not imminent, but meanwhile, long-lived plug-able optics. Our next question will come from the line of Joseph Cardoso with JP Morgan. Please go ahead. Hi, good afternoon and congrats on the results as well. You know, maybe the question that I wanted to touch on and maybe it kind of does tails off of the clarification on the last one.

You know, when we take a look at the initial full year guide for 2027, particularly as it relates to maybe the non-AI non-campus business, I think growth is being implied to moderate from the strong 2026 levels. I was just wondering if you can kind of touch on the underlying assumptions or factors that's maybe driving a little bit more moderation here into 2027 and whether that's maybe just tough compares or conservatism in terms of supply, etc. Just trying to understand directionally what's the drivers of the 20/27 forecast that relates to the maybe core business.

Thank you. Thank you, Jo. Listen, when some things are growing 60 and 100 percent, and then you say the overall growth is 38 to 40, then obviously some of the things are not growing as fast, right? We're very comfortable that everything's going to grow double digits, some more, some less, and we're also very comfortable that given a first guide literally over a year before that all sectors are doing well for us. AI, enterprise, specialty cloud providers, front-end networks.

So we started out 2026 wondering if front-end would grow. So it's a cyclical thing. When the back-end grows the front-end may grow a little slower and the back-end slows down the front-end may grow a little faster. So I I wouldn't read any conservatism into these numbers. These are widely higher enough to the sticks than we had once projected. So enjoy them for a moment and hopefully they'll get better. Our next question will come from the line of James Fish with Piper Sandler.

Please go ahead. A fantastic quarter in bed here to start for 27 ladies and Ken and I have two gentlemen and two ladies here and and Todd I didn't forget about Utah but look I appreciate the early outlook but you guys always talk about one to two quarters of visibility you tend to be a very prudent team And so maybe going back to I think it was on this question, I guess the confidence in providing this durability at this scale this early.

And why, you know, we're going to see, see this kind of strength persist why arrest of her scale up in in 2028. Thanks. Well, I'll just go back and thank you for the kind words to the ladies and gentlemen. That's right. To all of us. I think that, so I'll just go back and reiterate the confidence level, you know, there was a lot of thought obviously put into a guide this strong, this early. So there's a lot of attention to pay with all this and I can enjoy sharing myself and team, you know, so we were, we had to get comfortable first and we're very comfortable with all the things we've done to secure what we need to go ahead.

And again, the two quarters visibility, two years of relationship and technical conversations. So somewhere between the second half lands and it's the usual kind of cadence, we have so nothing's changed there. And then the second part of your question was about scale up going into 27, 20, 28, 23. Yeah. So, Solis and I, I think scale up's been a tough market for us because it doesn't have all the software advantages that we bring, but it absolutely has the hardware skills and all the non-imidia accelerators that are interested in the best position to connect to.

So this movement from stand alone basic switches to that scale is something that, you know, Andy Alex, Hugh Hallbrook, the entire team has been working on and co-developing for a couple of years. It's hard work. Just as we were staring at Infiniban and now we can go, of course, it's going to be Ethernet. We're looking forward to a time where we were staring at, you know, proprietary UA link or NV link and we're going to go, of course, it's going to be Ethernet.

But these type of migrations do our multi-year. And so we're very confident not only in our 27 guide, but a promising 28 ahead as well. And the reason we are is because even though we have two quarters of visibility, we have two years of work behind us. Our next question will come from the line of Tao Lianni, would think of America, please go ahead. Hi guys, hi ladies and gentlemen, sorry, I'll start from the beginning. Thank you, Tom.

I missed the call last time, and you raised the guidance substantially, and now you're doing it again. And on the other hand, I heard Shontal explanation about deferred revenues, but the sequential are slowing down. If I look at total deferred and current deferred are slowing down. But you are feeling more comfortable with next year, and you're guiding well, well above the street. question is, when you look at orders versus recognizing from deferred, because of availability of components, because of releasing kind of deferred revenues, because of completion of build out, et cetera, so what are the drivers for, like same question, but for different angles, what are the drivers for the growth?

Is it orders or is there some part there of recognition of historical orders? And then is the third revenue actually losing some of its predicting ability just because I see some decoupling between the deferred revenue trends and revenue growth trends? Okay. Let me start and then, ladies and tell, will you take over? So I think first, you tell, we missed you last quarter because we don't get this level of details from anyone else on exactly what the puts and takes, I just broadly look at you and say, "Hey, it's great demand."

And if you want to dissect demand into how much is sitting into deferred, how much is sitting into our orders, how much is getting shipped into revenue, you're turning demand into a physics problem that I don't have the answer for because I don't predict or forecast deferred. Deferred is a strong function of a new use case or a new product that eventually is not a new use case or a new product. So we had millions of dollars come out of deferred, because the use case was satisfied.

We had millions of dollars go in as deferred, and generally that number, if you look at it over the last few quarters, or if you look at it over the entire year, it's trending up, but deferred is never going to be infinite. It is going to come out, and other new deferred will go in, or the product becomes similar and less new, right? So, it's important to just look at this big picture and say, we got demand.

We got demand in AI, in enterprise, in campus, in data centers, and we're just in the best position we've been in a long, long time, in my 18 year career, over to you, Shanka. - Yeah, the only thing I think it was very well said, and I think that's the right perspective to take on this. So, we don't get too lost in the weeds of our quarter to quarter basis. We're very confident in the demand and the guide.

The purge is a bouncy to count that, you know, reflect whatever happens in the quarter, so that is what it is. The only thing I would add, like I said before, Tal, we did miss you last quarter, was that we anticipate the end of this year from a deferred balance to be higher than we did last year, which shows that the P&L did with the P&L need to do without deferred. So if that helps you feel more comfortable with that, then that's the only thing I see you with.

Our next question will come from the line of Ryan Koons with Needham and Company, please go ahead. - All right, thanks for the question. Wanted to follow up on some of your scale up commentary and ask about some of the technical design changes a little bit here with obviously, including more optics and including liquid cooling. And how will that change your fulfillment model? What things are you including in your sale versus partner to reference third parties in?

Maybe you can expand a little bit on your product plans around scale up and how we should think about the product changes. - Yeah, actually that's a really good question, Ryan. We're still figuring it out ourselves because our risk of value in the rack scale is still the switch. But however, we have to design the whole rack and then work with different partners differently on whether they want the whole rack from us or the rack gets shipped through our manufacturing partners while we basically ascertain the switch.

So each different stokes for different folks Because we've got three different designs going on with the orthogonal, the cable black plane, and the cross rack design. Each one is a little bit different. Give us a chance in the next few quarters to share with you what's going on with each one. There isn't one answer to your question. The one last thing I do want to add to that is that what's very clear is there's a lot of switches swimming in water.

A lot of it's liquid cooled. Our next question will come from the line of Carl Ackerman with BNP, Periba, please go ahead. - Yes, thank you very much. Chantel or Jay Shree, I like to ask a question that was similar to peers, but in a slightly different way. In the context of your 2027 revenue outlook, can you speak to whether your revenue outlook is predicated on new permitting or financing of PowerShell infrastructure to achieve these forecasts?

And as you address that, can you speak to whether you require and aggressive drawdown of your deferred revenue balance to achieve your outlook. I think I know the answer, but we'll love your view. Thank you. - What do you think our answer is? - Yeah. (both laughing) - It's so nice to sometimes ask a question ourselves. - I don't think you need to, but I would love clarification. - Okay, go for it. - Yeah, we're not, we don't guide deferred, so I think that was the answer you were expecting a second hand, I would say from the perspective of the guide next year, we are looking at what we know ahead of us two quarters' ability, you know, taking a lean on the second half of the next year in the sense of what we've had conversations with some of our largest customers that run where we have and Todd's business in the sense of enterprise and all that comes together, but we don't guide deferred.

But the question was, I'll be counting on data center. The first part, the second part was, are we preparing to draw down deferred to hit the number? Yeah. but I would say that we see a very strong, you know, demand signals, demand environment, back to the momentum theme. But, J. Shri, if you want to comment. Right. Exactly. So, I think while we don't guide deferred, let me be clear that we do see plenty of new use cases and new product.

2027, like 26, is going to be filled with lots of new products. Our next question will come from the line of Jen Marko-Kanti with Deutsche Bank. Please Let's go ahead. - Yeah, thank you for that. Congrats to my poor side, great numbers. As SU-144 moves towards production in '28, how should we think about gross margin economics relative to your existing switching portfolio? And how much customer commits do you already have behind those programs? - You're talking about '27 or '28?

- What's the question? - '27 and '28.

It's about gross prices for a student for a four percent.

Look, since we went public, our long-term gross margin has always been in the 60 to 65. I think we've tightened the range now to more like, 62 to 64. We don't see any change.

Our next question will come from the line of the Daniel Yu with Bernstein. Please go ahead.

Well, congrats on a great quarter. I just want to talk concentrated the customer base for scale across. Should we think about this as really being driven by the cloud titans for synchronous training? Or will we also see the other cross deployments even among smaller customers or for inference use cases? Yeah, no, I think there are both small use cases and colos for scale across, which would be a smaller footprint switching and routing platforms like the 7280.

But, the concentration of our large customers also is high with our larger customers opting for the very large AI finds across data centers and requiring that kind of 576 core density and, you know, terabit scale and multi gigawatt deployments for security and performance. So, we do see both, but I think the revenue concentration favors the 7800, the location concentration of multiple sites favors the 70-80. Our next question will come from the line of Sean O'Loughlin with PD Cowan, please go ahead.

Great. Thanks for squeezing me in and congrats on the fantastic results, ladies and gentlemen. I wanted to just check in broadly on where we are actually in the front end cycle. I think we've spent so much time talking about, you know, scale out, scale across, back-end deployments and the focus on 800 gig and above in those deployments that maybe we collectively have lost track of where we are in the sort of more traditional front-end computing, just wondering if you could comment on that and what you see in terms of market trends on the front-end specifically.

Thanks. Yeah. Now, Sean, it's a very good question. it's like a sine wave. When everybody's focused on the back end, then there's, you know, in those customers, they're thinking less about the front end. And then sometimes when they're focusing a lot on the front end, they're not worrying as much about the back. If you look at it over a period of time, like six quarters to two years, you can capture both. But in a given year, you know, we had one 10% customer, for example, put a lot of thought into the, you know, multi-hundred gig refresh of the front end before enhancing the back end.

And so that particular year, the front end was very high, but the back end was low. So following year, maybe the reverse. So if you tend to look at it over multiple quarters and years, they even out. But if you tend to look at it in a concentrated period of time, you'll usually see more of one than the other. Right now, in general, we're seeing more back end and AI fabrics, and I think the front then we'll catch up later.

- Our next question will come from the line of Antoine Gabin with new street research. Please go ahead. - Hi, thanks for taking my question and congratulations on the very strong set of results. Ken, may you want for you, I want to ask about Ava with all the recent high-profile infrastructure security breaches that we've been hearing about. It looks like the technology can address a very large opportunity, so how should we think about sizing it, how do you plan to monetize Ava, and is that going to fall into products, or could Israel actually have a meaningful acceleration in your services revenue?

- We are early days in understanding all of that. We have just turned Ava on as an alpha feature for customer trial within our cloud vision service, and we are currently working on pricing models. I don't think I have any forecast or data to share with you at this time on that. But I think it's very promising and, Tuan, because back again to Ken's point that he repeatedly makes with me is the architecture of the U.S. is so sound, that adding Ava or Cloud Vision as capability to look at deeper details and get more analysis starts with the foundation.

Right? So, we feel very privileged that we can sit here and we can talk about, "Oh my God, our vulnerability is doubled from 30 to 67," and we fix them. And therefore we can go apply Ava. Everybody else is dealing with a good game of whack-a-mole where they've got thousands of vulnerabilities and no Ava can possibly keep track of it. So I think we feel in a very good position to monetize Ava in the next few years.

Our next question will come from the line of Ben Bolin with Cleveland Research. Please go ahead. Good afternoon everyone. Thanks for taking my question. I suppose I'm interested in your thoughts on where lead times are across the portfolio if we kind of covered up into enterprise centric and hyperscale centric, just what those look like today. And I was hoping Todd could talk maybe a little bit more big picture about the go-to-market effort, the execution within enterprise share capture and how that's building and where that goes from here.

Thanks. Yeah, on the lead times, and it goes both for the component lead times and the finished good lead times. In the enterprise side of our business, we tend to have shorter lead times, somewhat shorter, and that's driven by the fact that those switches are not always in the absolute cutting edge, they're not leading brand new technologies requiring the highest process, silicon, etc. we're able to. They're also tend to be at a lower price point. We're able to hold a little bit more buffering inventory there.

So we tend to have lower component lead times there and lower lead times to our customers on the AI side, on the ultra advanced hyperscale data center lead times tend to be a little bit longer. As far as the build out on the go-to market side, you know, we were really, we have been just really pleased with the momentum we've seen this year and the the maturity that's being built into the whole, go-to-market on the kind of thought leadership side and awareness side.

We saw a great momentum from webinars and from events. In fact, we have our largest customer event coming up in December, which we're very excited about. And on the sales execution side, it's been just phenomenal efficiency from that team. And we're looking forward to continuing to build out next year. I just want to add, Todd, also, I see that you and Chris Schmidt for Spummer, you really heightened the investment not only in the United States, but with key verticals and international as well.

So I think all of the gold market investments we've been making over the last year, and in fact, the last three years, is really paying off. Absolutely. Irrigina, we have time for one last question. Our final question will come from the line of Mehdi Hosseini with Susquehanna. Please go ahead. Yes, thanks for taking my question. I have two quick follow-ups. Going back to your revenue guide for 27.18.5 billion, should we assume that all the citizens have been planned for?

And then the second question, if you could elaborate on the mix between cloud and enterprise, I just want to get a bit understanding how enterprises are investing as it relates to hyperscalers. Thank you.

Sorry, sorry, you asked, is all the silicon plan for already in the 18 and a half day?

Should we, since you are providing a national assessment on 2027 revenue target, should we assume that you have already planned with your suppliers and silicon is secure for both compute then a memory, and there are some that argue that Titus is gonna get worse in 27, and just wanna make sure that there is no doubt for this to be started as a list to inventory management and supply. - I understand, I understand. Yeah, we work very, very closely, we're sort of proud of our strategic partnerships, and we've been investing heavily in long-term strategic agreements in our secure supply, not just in Silicon, but PCB capacity memory, which Chantel mentioned earlier.

So we're incredibly, we have very high confidence in the ability to deliver supply to the forecast. We, of course, we would not want to place everything to five quarters lead time for all of next year, so not every order is placed. This concludes the rest of networks.water 2026 earnings call. We've posted presentations that provide additional information on our results, which you can access, and they invest this action of our website. Thank you for joining us today and for your interest in Aristo.

Thank you for joining, ladies and gentlemen. This concludes today's call. And you may now disconnect.

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