Arista Networks beats Arm with $3B revenue, 40% margins

Arista Networks just posted its strongest revenue growth in years, outpacing rival Arm Holdings in a head-to-head race fueled by the AI boom. Over the past eight quarters, Arista’s sales have climbed steadily every three months, while Arm’s revenue has seesawed—up one quarter, down the next. Both companies are riding the artificial intelligence wave, but Arista’s hardware and networking gear for data centers are in hotter demand right now.

The divergence reflects where each firm makes its money. Arista sells high-margin switches and software to cloud giants and telecoms, racking up $3 billion in revenue last quarter and a 40% net income margin. Arm, by contrast, licenses chip designs mostly for phones; its mobile royalties still dominate, though AI servers are becoming a bigger slice of its business. Arm’s data-center royalties doubled year-over-year in the latest quarter, but its overall growth remains lumpy, partly because it’s still scaling up in a new market.

Investors are watching closely as Arm navigates a bumpy transition. The company faces federal probes opened in May, and its stock has fallen 15% from a June peak even though it still trades at a sky-high forward price-to-earnings ratio of 128. Arista, meanwhile, trades at a more modest 35 times forward earnings. Free cash flow tells a similar story: Arista generated $1.1 billion last quarter, while Arm pulled in $694 million. The gap underscores how quickly AI infrastructure spending is shifting toward networking gear that links thousands of AI accelerators.

What happens next could reshape investor bets. If Arm’s AI royalties keep accelerating, its revenue swings may smooth out. But if Arista keeps winning big cloud and AI deals, the gap could widen further. Either way, the contrast shows how two “AI” stocks can look very different under the hood.