Shareholders of data center networking design and software provider Arista Networks (NYSE: ANET) got another helping of worry recently, this time delivered by none other than Nvidia (NASDAQ: NVDA).

Arista manages a formidable little data center empire based on Ethernet networking technology, the same wired tech you’re likely using to plug your PC into your internet modem. But in April, several Wall Street analysts downgraded their outlook for Arista on news of potential new competition from Nvidia. That worry rose another notch on May 22 when Nvidia CEO Jensen Huang told analysts on the company’searnings conference callthat his company is “all in on Ethernet.”

Despite the heightened worries (and the trading volatility they created), Arista stock is still up nearly 30% so far in 2024, and it has more than doubled in price in the last year.

Is it still a good buy now?

Arista is still doing OK

Setting aside Nvidia’s epic financial performance, let’s judge Arista on its own merit. Because really, this company has hit its stride and is sustaining its fast pace.

First-quarter revenue was up 16% year over year to $1.57 billion. Management expects at least an 11% year-over-year revenue increase in the second quarter. What’s remarkable about that is that it builds atop a 34% full-year revenue increase in 2023 and 49% in full-year 2022. Suffice it to say Arista is benefiting from the current data center construction boom.

Data by YCharts. TTM = trailing 12 months.

Even better than revenue, though, earnings per share (EPS) according to generally accepted accounting principles were up 48% year over year in the first quarter. Free cash flow (FCF) was up 37% to $505 million for a healthy FCF profit margin of 32%.

Will Nvidia crash Arista’s party?

Nvidia doesn’t just make data center GPUs for artificial intelligence (AI). One of the key ingredients to its current success is its networking hardware, which it acquired in a merger with Mellanox in early 2020. Besides InfiniBand networking technology that has helped ease the adoption of the latest and greatest AI hardware, Nvidia acquired some Ethernet-based tech, too, with Mellanox.

And it’s Nvidia’s recent lean into Ethernet that has the market a bit jittery. The company’s Spectrum-X Ethernet platform looks to build on its early success with InfiniBand and is a more direct competitor to what Arista offers its data center customers. Arista ranks “cloud titans” Microsoft, Meta Platforms, big financial institutions, and other large enterprises as its top customers.

Two counterpoints to this worry about a looming Nvidia: 1. Arista says its customers’ spending is healthy, especially among “cloud titans” as they continue to expand global cloud-network coverage, and 2. It is working on its own Ethernet-based AI networking tech to counter Nvidia.

Last summer, Arista and others — including chip design giant Broadcom — announced the Ultra Ethernet Consortium to advance Ethernet technology for the new era of AI. It might take a couple of years for the payoff from this work to be fully realized, but it’s obvious from Arista’s recent financial performance that it still is very much engaged with its customers on networking infrastructure build-out.

The real risk can’t simply be boiled down to an Nvidia problem. Competition has been, and is always going to be, the name of the game in this networking and cloud infrastructure arena. Arista will be just fine. But is the stock a buy? At 38 times expected full-year 2024 EPS, shares do trade for a premium after the big rally in the last year.

Just as I wrote last month, some patience with Arista stock could be rewarded as the market digests recent news and the company’s own rapid advance. I can’t call it a best-buy candidate now, but I’m certainly more than happy to continue holding my position for the long term. Investors who want in on the action might want to consider building a position gradually, perhaps using a quarterly dollar-cost averaging plan over time to buy this leader in cloud computing.

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Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Nicholas Rossolillo and his clients have positions in Arista Networks, Broadcom, Meta Platforms, and Nvidia. The Motley Fool has positions in and recommends Arista Networks, Meta Platforms, Microsoft, and Nvidia. The Motley Fool recommends Broadcom and recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.