This relatively unknown tech name was in the right place at the right time with the right solution.
It’s been an amazing past 10 years for Arista Networks (ANET -7.42%). Although it wasn’t clear for the first several years following its 2004 launch that a newcomer could successfully compete with networking giant Cisco Systems, its clever improvement to existing networking technology (the company’s switches and routers are largely software-based, and therefore can be custom-programmed and updated) have made Arista’s solutions a very popular option.
And shareholders have been well rewarded for their foresight and patience.
First fueled by cloud computing, and then artificial intelligence
What would a $10,000 investment in Arista Networks back in mid-September 2015 be worth today? The graphic below shows its growth. With an average annualized return of about 42% per year, this position would now be worth $356,280.
Data by YCharts
Most of this gain would have been realized in just the past three years, driven by the rapid growth of artificial intelligence data centers that require high-performance networking solutions. Even prior to that, however, Arista was well equipped to capitalize on an expanding cloud computing market.
A repeat is unlikely, but…
Can ANET do the same again over the course of the coming 10 years? Never say never. But it seems unlikely.
The size of this gain is largely rooted in the sheer newness of AI, which forced the hurried purchase of any and all solutions capable of making artificial data centers function as needed. However, this explosive phase of the movement is now in the rear-view mirror.
Don’t dismiss this stock’s remaining upside potential, though. While the mathematical pace of AI’s relative growth will almost certainly slow from here, Global Market Insights still expects the worldwide artificial intelligence hardware market to grow at an average annual rate of 18% through 2034. The flexibility of its software-based networking solutions leaves Arista Networks well-positioned to capture at least its fair share of this growth.
James Brumley has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Arista Networks and Cisco Systems. The Motley Fool has a disclosure policy.