Piper Sandler upgraded its rating on network solutions provider Arista Networks (ANET.US) from "Neutral" to "Overweight," citing the company's continued success in gaining customer share within the data center and enterprise campus sectors. The firm also raised its price target on the stock from $145 to $159, following a 2.7% rise in Arista's share price on Monday.

"Currently, nearly half of the company's business originates from Meta (META.US), Microsoft (MSFT.US), and Oracle (ORCL.US), and we anticipate these clients' capital expenditures will collectively increase by approximately 50% year-over-year at this point," Piper Sandler analysts James Fish and Kaden Dahl stated in a report to investors. "However, we expect the structure of capital expenditures will begin to tilt towards network equipment, as Arista may not see the full inflow of this spending for roughly the next two years."

"The business mix shifting towards cloud and AI giant customers is expected to lead to a near-term decline in product gross margin (GPM). Furthermore, investments in the enterprise market are increasing, driven by new leadership initiatives, benefits from campus network refreshes, a changing competitive landscape, and the acquisition of VeloCloud, a business that may still need to build its own SSE," Fish and Dahl added. "We believe a strategy focused on capturing market share is the correct approach during this period when share in enterprise data centers, campus networking, and AI infrastructure is more readily available."

Arista acquired Broadcom's (AVGO.US) VeloCloud SD-WAN assets last summer. This acquisition was aimed at bolstering Arista's capabilities in cognitive branch networking, enabling zero-touch operations and automated troubleshooting across enterprise environments.

Piper Sandler also noted that Arista has historically provided conservative guidance for its sales and profit margins, with actual results surpassing initial guidance by an average of 11% and 4.4%, respectively.