Investing

Forget Cisco: This Stock Is the Next Millionaire Maker

Kristin Hitchcock

Published: July 10, 2024 2:10 pm

Last Updated: July 14, 2024 7:58 pm

For decades, Cisco (NASDAQ: CSCO) has been the networking kingpin, developing technology that allows companies to connect and communicate. $1,000 invested at IPO would be over $594,000 today. Just take a look at their stock chart:

However, cloud computing has shaken the foundation of this industry and led to the rapid rise of several other companies, such as Arista Networks (NYSE: ANET).

Arista Networks, with its innovative cloud networking solutions and strong financial performance, is poised to disrupt Cisco’s dominance and become the next high-growth millionaire-maker stock in the networking equipment industry.

While Cisco grapples with adapting its legacy model, Arista is in charge of software-defined networking solutions. Let’s look at the factors propelling Arista’s growth, analyze its financial strength, and explore the future potential of this company.

Key Points in This Article

• Cisco has been losing market share to Arista Networks
• Arista’s growth rates have been much higher thanks to its leadership in cloud networking and tailwinds from AI spending
• If you’re looking for stocks that could be millionaire makers in AI, make sure to grab a complimentary copy of our brand-new “The Next NVIDIA” report. Stocks that led the first wave of AI have seen returns as high as 25,000%, but new leaders could dominate the next wave of growth in the field.

Why Cisco Might Be Losing Ground

The transition towards cloud computing has fundamentally altered how many businesses operate and manage communications. Traditional hardware-centered systems (like those championed by Cisco) are slowly falling out of style. Cloud computing is simply more dynamic.

Cisco’s reliance on legacy hardware has led to it adapting slower than many smaller companies. Of course, this makes sense. Larger companies typically take longer to adapt than smaller ones, after all.

Cisco’s stock price has remained stagnant over the past few years, while the broader market and Arista’s stock have seen significant growth. This suggests that Cisco isn’t the titan it once was. In fact, we wrote a whole guide on reasons to avoid Cisco.

Arista Networks: The Cloud Networking Leader

Arista Networks isn’t new by any means. They were founded in 2004 by seasoned networking veterans. Their entire business model revolved around cloud networking. Their main focus is on delivering solutions to data centers and cloud environments.

Currently, Arista is a leader in software-defined networking. SDN separates network intelligence from the physical network devices. In this way, the management of the network can be centralized and virtual to a large extent. This has several benefits from the more hardware-based solutions:

• Automation: IT staff is freed up from routine network tasks as AI takes over some of their caseloads.
• Visibility: Real-time insights and better control are available, allowing for improved optimization.
• Scalability: Companies can easily scale their network up or down as their needs change.

Thanks to this focus and the rise in the computing industry, Arista’s growth has been propelled further. Their annual revenue increased by 33.75% in 2023, and they have regularly outperformed expected revenue predictions.

Financial Performance and Investor Potential

You can see Arista’s potential just by looking at traditional metrics, like revenue growth. The company boasts a consistent year-over-year revenue growth. Furthermore, the company maintains healthy profitability margins, indicating that they have solid management.

While Arista’s Price-to-earnings (P/E) ratio might appear higher than Cisco’s at first glance, it’s crucial to consider its future growth prospects. Analyst projections for Arista’s earnings growth significantly outpace those for Cisco, suggesting the market is starting to recognize Arista’s long-term potential.

If you’re looking for a strong growth stock to invest in, Arista is a solid option. Their focus on cloud networking allows investors to get exposure to this quickly-growing industry.

Arista’s Potential Challenges

Of course, Arista is not perfect. There are plenty of challenges that the company faces, and no investment is certain. As you can probably guess, we really like Arista as an investment opportunity, but we cannot deny the fierce competition in the networking industry. There are many big players, like Cisco, that constantly threaten Arista.

Plus, there are new startups appearing every year, and each of them has the potential to eat up market share. Even if it isn’t a lot, small challenges from these companies add up and can reduce Arista’s potential revenue.

Furthermore, Arista is relying on a few key cloud providers. They are not completely self-reliant in this sense (though not many companies are). This possess a risk if those partnerships are ever strained.

Luckily, Arista is actively looking to mitigate these challenges. They are innovating and have been since the beginning. Their product catalog is constantly expanding as they cater to more companies and create more solutions.

None of these challenges are overwhelming right now, but they are something to watch if you invest in this company.

Should You Invest in Arista Networking?

The networking equipment industry has been going through rapid change as new technology develops. Right now, cloud computing is a bit of a mover in the business landscape, and Arista is right at the center of that. While they are decidedly not a start-up, their main focus is on cloud computing, and they have been taking advantage as many companies switch over from more traditional networking options.

One look at the metrics shows that Arista is a compelling investment opportunity. They have revenue growth consistently and strong future projections. Their industry is continuously growing, and they are in a good position to take advantage of this growth.

However, they are a long-term investment. This isn’t a company that will make you a millionaire overnight (though, really, there aren’t any companies that are). It’s a company you buy and sit on for several years (or even decades).

Note: This article has been corrected to change Cisco’s returns since its IPO.