ANET vs. HPE: Which Networking Stock is a Smart Investment Now?
Arista Networks Inc. ANET and Hewlett Packard Enterprise HPE are major players in the networking industry worldwide. Arista provides industry-leading cloud networking solutions for data centers and cloud computing environments. The company offers 10/25/40/50/100 Gigabit Ethernet switches and routers optimized for next-generation data center networks.
Hewlett Packard Enterprise boasts a broad portfolio that comprises server, cloud-native and hybrid solutions across storage and private cloud space. The company is also a leading network solutions provider offering wired and wireless local area networks, campus, branch, and data center switching, software-defined wide-area networks, private and public cellular network software, network security and more.
With diverse portfolio offering, both HPE and ANET hold a strong foothold in the networking industry. Let us analyze in depth the competitive strengths and weaknesses of the companies to understand who is in a better position to maximize gains from the emerging market trends.
The Case for HPE
HPE is placing a strong emphasis on expanding its networking business. Its Aruba Networking portfolio is designed to offer end-to-end networking solutions by combining hardware products such as Wi-Fi access points, switches, and gateways with software and services such as cloud-based management, network management, network access control, software-defined wide-area networking, network security, analytics and assurance, location services software and more. Such comprehensive offerings coupled with a cloud native approach provide customers with a unified framework that effectively matches all requirements for connectivity, security across campus, branch, data center and as well as remote environments.
To strengthen its market position in the networking industry, HPE has inked an agreement to acquire Juniper Networks Inc. JNPR in 2024. The strategic move aims to integrate Juniper's extensive array of cloud-based networking solutions, software and services, including Mist AI, with HPE Aruba Networking and HPE AI interconnect. This is expected to expedite the development of secure, unified networking solutions optimized for hybrid cloud and AI. The merger proposal has received approval from several antitrust regulators, including the European Commission and the U.K. CMA.
However, it is to be noted that HPE and Juniper are the second and third largest WLAN (Wireless Local Area Network) solution providers in the industry. The merger is facing roadblocks in the United States. Department of Justice (DoJ) intervenes on the ground that the merger will reduce competition in the enterprise networking market, leading to lower innovation and reduced options for customers. Several industries that depend on networking products would be hit by higher prices. HPE is set to defend the acquisition on several grounds.
Adoption of AI and cloud technologies has lowered the entry barrier in the industry, and the company has already received regulatory clearance from several authorities. HPE faces stiff competition from Cisco Systems Inc. CSCO, Arista, Ubiquiti, Palo Alto Networks and several others in the networking market. Cisco holds about 50% market share in the industry. Hence. HPE is arguing that the buyout with Juniper will promote fair competition and drive innovation in the market. It is to be seen whether HPE can clear this roadblock in the upcoming lawsuit initiated by the DoJ. The termination of the merger will be a major setback for HPE's ambition to become a major player in the networking space.
HPE's debt-to-capital ratio stands at 34.4% with a current ratio of 1.33. The company is taking initiative to drive cost savings to streamline its operations and improve productivity. In the first quarter of 2025, HPE utilized $390 million in cash against a cash generation of $64 million in the year-ago quarter.
The Case for ANET
With a strong focus on innovation and portfolio strength, Arista has created a niche market in the data center and cloud networking domain. The company has introduced a wide range of solutions for cloud, Internet service providers, and enterprise networks to meet the rising demands of AI/ML-driven network architectures. The Arista 2.0 strategy is resonating well with customers with its modern networking platforms being foundational for transformation from silos to centers of data. The company is focused on providing the best-in-class, highly proactive products with resilience, zero-touch automation and telemetry with predictive client-to-cloud one-click operations with granular visibility and prescriptive insights for deeper AI algorithms. Such a strategy is driving customer engagement.
It offers one of the broadest ranges of datacenter and campus Gigabit Ethernet switches (1/2.5/5/10/25/40/50/100/400) and routers in the industry. It holds a leadership position in 100-gigabit Ethernet switching for the high-speed datacenter segment. Moreover, the 200- and 400-gig high-performance switching products are also gaining market traction. Arista's routing and switching platforms boast industry-leading capacity, low latency, port density and power efficiency. The company also continues to innovate in areas such as deep packet buffers, embedded optics and reversible cooling. Such a comprehensive portfolio augurs well for its long-term growth.
As of March 31, 2025, the company had $1.84 billion in cash and cash equivalents and $257.8 million in other long-term liabilities. During the quarter, it repurchased $787.1 million worth of shares, the largest repurchase in the company's history. It generated $641.7 million in cash from operating activities. The company's strong balance sheet with healthy cash flow generation indicates efficient capital management and streamlined operations. The company is well-positioned to invest in growth initiatives, and its business model is resilient to market downturns. Its current ratio stands at 3.93 with no long-term debt.
However, the company faces stiff competition in cloud networking solutions, particularly in the 10-gigabit Ethernet and above. Cisco is the dominant player in the data center networking market by virtue of its diverse portfolio of IP-based networking products. Apart from Cisco, it also faces competition from Dell and HPE. The company is exposed to significant customer concentration risks.
How Do Zacks Estimates Compare for ANET & HPE?
The Zacks Consensus Estimate for Arista's 2025 sales and EPS implies year-over-year growth of 18.72% and 12.78%, respectively. The EPS estimates have been trending northward over the past 60 days.
Image Source: Zacks Investment Research
The Zacks Consensus Estimate for HPE's 2025 sales implies year-over-year growth of 8.2%, while that for EPS implies a decline of 9.55%. The EPS estimates have been trending southward over the past 60 days.
Image Source: Zacks Investment Research
Price Performance & Valuation of ANET & HPE
Over the past year, ANET has gained 19.1%, while HPE has declined 5.3% over the same period.
HPE looks more attractive than Arista from a valuation standpoint. Going by the price/earnings ratio, the company's shares currently trade at 8.87 forward earnings, significantly lower than 33.65 for Arista.
ANET or HPE: Which is a Better Pick?
HPE carries a Zacks Rank #4 (Sell) at present, while Arista carries a Zacks Rank #2 (Buy). You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.
Both companies are steadily expanding their networking portfolio with an AI focus and expect their net sales to improve in 2025. HPE's broader portfolio offers better stability and resilience in a volatile market. However, Arista is steadily strengthening its position in the Data Center and Cloud Networking vertical, driven by its highly scalable, programmable platform that offers data-driven automation, analytics and world-class support services. Its strong cash flow generation and effort to improve shareholder return with an aggressive buyback program are positive. Upward estimate revision shows investors' growing confidence in Arista stock. Hence, with a superior Zacks Rank and better price performance, Arista appears to be a better investment option at the moment.
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Cisco Systems, Inc. (CSCO): Free Stock Analysis Report
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