Both companies face a complicated current landscape, with signs of slowing in enterprise IT spending offset by robust demand from public cloud customers, all complicated by ongoing shortages of key components.
But the outlook for the two companies is not entirely in sync – and Barclays analyst Tim Long is advising investors to switch their networking bets to Arista (ticker: ANET) from Cisco (CSCO).
The analyst on Wednesday swapped his ratings on the two stocks, lifting Arista to Overweight from Equal Weight, while reducing Cisco to Equal Weight from Overweight. Long keeps his $131 target on Arista, for a potential return of about 15%, while cutting his target on Cisco to $46, from $56.
Long’s view is that Arista can maintain mid-teens growth for at least a few more years, as it continues to take market share in data center switching. He has some concerns about slowing growth from the cloud, but still sees double-digit growth ahead, and notes that Arista has diversified its cloud customer base beyond its substantial relationships with both Microsoft (MSFT) and Meta (META), which accounted for 23% of overall revenue in 2021, down from 40% in 2019.
Long also sees more success for Arista in the campus switching market, where he notes that the company has under 2% market share. Campus switching encompasses networks at a single location, such as a corporation, a university campus or a collection of government buildings. Not least, he points out that the company’s outsized North American exposure – about 80% of revenue – limits the impact from foreign exchange headwinds.
On Cisco, Long says that he previously had been bullish on both the company’s market share gains in the cloud market and the increased portion of revenue coming from software.
But he says that the company’s share gains in cloud have “stalled,” and he finds that the company’s shift to a more software-based model “has been slow.” Long adds that customer surveys find “downticks in spending,” with market share pressured in key markets, including routing, switching and wireless networks. And he thinks that Cisco could be more vulnerable than peers to a macroeconomic slowdown in 2023.
In early trading, Arista was up 3.6% to $118.17. Cisco was up 0.4%, to $42.74.
Write to Eric J. Savitz at firstname.lastname@example.org