Shares of Arista Networks Inc. were tumbling in late trading today, even though the company delivered a solid earnings and revenue beat and offered guidance that came in above Wall Street’s expectations.

For the first quarter of fiscal 2026, Arista delivered earnings before certain costs such as stock compensation of 87 cents per share, while its revenue jumped 35% from a year earlier, to $2.71 billion. Wall Street had been looking for earnings of just 81 cents per share on lower sales of $2.62 billion. Net income for the period came to $1.02 billion, up from a profit of $813.8 million in the year-ago quarter.

Executives told analysts the company is projecting second-quarter revenue earnings of 88 cents per share and revenue of $2.8 billion at the midpoint of its guidance range. That also came in above expectations, with analysts modeling earnings of 86 cents per share on sales of $2.78 billion. Despite the encouraging numbers, Arista’s stock fell more than 10% in extended trading, though it remains up more than 29% in the year to date.

Arista is widely viewed as one of the beneficiaries of the artificial intelligence boom that kicked off with the arrival of ChatGPT in late 2022. The company sells cutting-edge Ethernet switches, routers and other networking hardware, which have proven to be crucial for AI data center operations. These components make it possible to link large clusters of AI chips to power large language models and fleets of autonomous agents.

The market may have been reacting to Arista’s adjusted operating margin projection of between 46% and 47% in the next quarter, which is lower than the 48.8% margin a year earlier. It also trails the 47.8% margin posted in the quarter just gone, and suggests that the company’s profitability is eroding slightly. In addition, Arista Chief Executive Jayshree Ullal (pictured) told analysts on a conference call that the company expects supply constraints to persist for the next year or two.

Nonetheless, Ullal insisted that the company has gotten off to a strong start to fiscal 2026. “We are uniquely positioned to deliver the mission-critical confluence of secure client-to-campus-to-cloud and AI networking,” she said.

Arista announced new XPO high-density liquid-cooled pluggable optics for AI data centers during the quarter, which promised to reduce networking rack sizes by up to 75% and save up to 44% floor space compared to traditional pluggable optics. It also launched a new “universal AI spine” powered by the Arista 7800 switch that promises to deliver “massive scale, predictable performance and high-speed interface support.”

Photo: Morgan Stanley/YouTube