The Nasdaq Composite: A Bullish Outlook for 2025
The Nasdaq Composite has been on a remarkable upward trajectory over the past two years, driven by a combination of factors including the recovering economy, rapid adoption of artificial intelligence (AI), a decisive U.S. Presidential election, and two recent interest rate cuts by the Federal Reserve Bank. With a 43% surge in 2023 and a 34% increase so far this year, history suggests there’s still significant upside potential as we head into 2025.
Bull Markets Typically Run for More Than Five Years
Records show that the current bull market kicked off on October 12, 2022. While each rally has its unique characteristics, history provides valuable perspective. On average, bull markets tend to run for more than five years. Given that the current rally has just passed its second anniversary, it’s likely to continue its ascent into 2025. Furthermore, in years following gains of 30% or more, the Nasdaq has climbed an additional 19% on average, making history a strong ally for investors.
The Resurgence of Stock Splits
Adding fuel to the fire is the renewed interest in stock splits. This trend is prompting investors to take a fresh look at companies that decide to split their shares, as this is often preceded by a history of robust revenue and earnings growth. One such company is Arista Networks (NYSE: ANET), which has gained an impressive 2,590% over the past decade and 92% over the past year.
Arista Networks: A Leader in AI-Centric Ethernet Products
Arista Networks provides a broad range of routers, switches, and other networking equipment that underpins the data flow in servers, data centers, and networks. The advent of AI has shone a spotlight on this underappreciated part of the equation, leading to a mad dash to upgrade data centers to meet the rigorous demands of AI and keep data moving at peak efficiency. Arista has released a number of AI-centric Ethernet products designed to do just that, and demand for these pioneering products continues to accelerate.
Bank of America Predicts Brisk Growth in Data Center Demand
Bank of America believes data center demand will continue to grow at a compound annual growth rate of 50% over the next three years. This, in turn, will accelerate demand for the crucial components supplied by Arista Networks. The company’s products are unmatched for AI data center applications, earning it recognition as a Visionary in Gartner’s Magic Quadrant and a Customer’s Choice in Gartner’s Peer Insights.
Arista’s Financial Results: A Testament to Its Growth
Arista’s financial results are a testament to its growth. For the third quarter, the company generated revenue that grew 20% year over year to $1.8 billion, while also increasing 7% sequentially. This resulted in earnings per share (EPS) of $2.33, an increase of 35%. The results sailed past management’s guidance and Wall Street’s consensus estimates. Management raised its outlook, guiding for revenue of $1.9 billion in the fourth quarter, which would represent year-over-year revenue growth of 23%.
Wall Street’s Bullish Outlook
Wall Street is equally bullish, calling for revenue growth of 19% this year and next. Of the 26 analysts who have offered an opinion in December, 77% rate the stock a buy or strong buy. Arista Networks has a compelling track record of growth and a ringing endorsement from Wall Street, making it an attractive investment opportunity.
Addressing the Elephant in the Room: Valuation
While Arista Networks’ valuation is certainly premium, selling for 54 times earnings, sometimes it’s worth paying up for quality. The company has outperformed the broader market by a wide margin over the past five years, delivering gains of 808%, roughly nine times the return of the S&P 500. With its growth streak likely to continue, fueled by the growing demand for AI, Arista Networks is a buy worth considering.
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