Missed Nvidia? Fund manager says this under-the-radar network stock is set for an AI boost
Tech companies — especially those leveraging artificial intelligence — have gained traction this year, with investors piling into the likes of Nvidia , Baidu and Alibaba . One firm that’s perhaps lesser known stands out to portfolio manager Sanjay Ayer, however: Arista Networks — the U.S. cloud-computing and networking equipment company. “[Arista] was initially very appealing for high-frequency trading and is now increasingly relevant with AI given the bandwidth of networking issues that AI is creating,” Ayer, portfolio manager at U.S.-headquartered WCM Investment Management, told CNBC Pro on Oct. 18. Ayer was speaking before Meta — a key Arista customer — published earnings last week. The social media giant’s cautious guidance put pressure on Arista’s shares, but the stock remains up around 40% year-to-date. In contrast, Nvidia — one of the most high-profile AI stocks — is trading around 175% higher than it was at the start of the year. Arista considers industry veterans Cisco and Juniper as competitors and was set up with the aim of building a “disruptive product with low latency, high bandwidth, high performance and high functionality in a single tech stack,” Ayer added. Over 40% of Arista’s revenue currently comes from Microsoft and Meta , and Ayer acknowledged that being so reliant on just two companies could deter some investors, given the possibility of Microsoft and Meta choosing to switch network providers. But he added: “Arista is embedded at these companies. They’re not [just] an outsourced manufacturer or hardware product provider – they’re [also] a research and development partner and they are helping to shape the roadmaps of these companies’ networking needs.” Of 21 analysts covering Arista, 11 give it a buy rating, according to FactSet data, with an average price target of $203.50, giving it around 6% upside potential. ANET YTD mountain Year-to-date performance of shares in Arista Networks. For Ayer, the company’s “customer-centric culture,” where its network operators are all trained software engineers, makes it a good investment. Arista’s biggest differentiator is this “high-quality talent,” he added. “The feedback is clear when you talk to people in the industry – it is the place to work. So, they just get the highest talent which also sets them apart,” Ayer said, adding that having a productive workforce should result in better output and – eventually – stronger financials. Ayer, who oversees around $68 billion of WCM’s assets, including $0.4 billion via the WCM Select Global Growth Equity Fund, said he is always looking out for companies with strong corporate culture. “We spend a lot of time trying to understand what a company’s DNA is,” he said, adding that the most “dangerous words” in investing are: “This is still a great business” and “it is cheap.”
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