Arista Networks released its Q2 earnings on the 5th of August, and with the boost of the earnings, the stock cracked the all-time high.
Congrats to everyone involved, and I hope you participated in this fantastic ride after reading my deep dive on Arista, which I published on the 30th of April.
Find the deep dive here:
If you did, you are already up 80%. Time to celebrate, and while you opened your bottle of champagne, I had a closer look at the numbers. Let's dig in:
Management’s summary
That’s how the management described the Q2/2025 results:
Arista is well-positioned in data-driven AI networking, from client to cloud," said Jayshree Ullal, Chairperson and CEO of Arista Networks. “Our customers are decisively standardizing on our best of breed platform to bring transformational innovation and impact to their technology endeavors.
Non-GAAP operating income crossed $1 billion for the first time at Arista, highlighting the strength of our business model and the momentum of customer demand across our portfolio. Our ability to scale efficiently while maintaining financial discipline continues to deliver value for our shareholders.
Income Statement
Last year’s Q2 revenue came in at $1.69 billion. This year’s Q2 revenue was $2.2 billion, a whopping 30% increase. Software and service renewals accounted for 16% of the revenue. Based on this strong top line and slightly improved gross margins of 65.2%, the gross profit jumped to $1.44 billion. The operating expenses grew 41% versus last year, and in turn, the operating income improved to $986 million, almost cracking $1 billion. With the help of $90 million in interest income, the earnings before taxes (EBT) reached $1.08 billion.
The number of outstanding shares declined by 0.7% year over year, and with the increased net income, the earnings per share came in at $0.70 compared to $0.52 in Q2/2024. That’s a strong 35% increase in EPS. Fun side fact: The luckiest number in Chinese culture is the number 8. Based on the net income of $888.8 million in Q2/2025, Arista must be the luckiest company out there.
Balance Sheet
Turning to the balance sheet, Cash and short-term equivalents increased to $8.8 billion. Accounts receivable, as well as the inventory, increased, but these are normal trends in a business that grows so fast.
What I like is the position “unearned revenue current”. Customers are paying upfront to receive services, the dream of every working capital manager. There is still no long- or short-term debt on the balance sheet.
Cash Flow Statement
Driven by the strong net income and the large change in unearned revenue, the operating cash flow increased to $1.2 billion. Most of the outstanding deferred revenue is from service contracts. Capital expenditures can be seen as a rounding error and amounted to $24 million. As a result, the free cash flow amounted to $1.18 billion, almost the same as the operating cash flow.
As you can see, Arista did a cash acquisition for $300 million. This money is tied to the VeloCloud SD-WAN business that was bought from Broadcom. Broadcom acquired VeloCloud as part of its large, $61 billion heavy acquisition of VMware, but considers the SD-WAN business outside of its core focus.
Operational metrics
Arista includes this fantastic slide in their earnings report, and you can see how fast the top 5 US cloud providers are growing their business.
Learn more about AI and how to benefit from AI here:
If you want to read the full article and learn about product news, guidance, the current valuation and my summary, please subscribe and support my work. To all existing subscribers: Thank you for your support, and enjoy the rest of the article!
Keep reading with a 7-day free trial
Subscribe to 41investments’s Substack to keep reading this post and get 7 days of free access to the full post archives.