Of all the revolutionary trends we are facing ahead, for example artificial intelligence, machine learning, genomics, self-driving cars, the Internet of Things (IoT), streaming video on Demand, I believe that the realm of cloud computing may be the most prolific.
So you know, when the term cloud is used, they are more or less talking about a type of internet-based computing, most likely, utilizing an offsite cluster of computers and hardware that provides shared computer processing resources to power things such as the internet, apps, video, IoT and anything else that is connected and requires data on demand.
So as our world gets more interconnected, we are going to see the amount of data processed skyrocket. Here’s a chart that reflects the amount data traffic expected moving forward.
We are currently somewhere between 5 to 7 Exabytes per month. By 2022, the world is projected to be using around 62 to 68 Exabytes per month. And this is only referring to mobile devices. Imagine what demand will be when our homes and cars really get online.
I know most people are familiar with megabytes, gigabytes and maybe even terabytes, so let me try to put into context an Exabyte. An Exabyte equates to a million terabytes. Five exabytes equates to ALL information generated up to 2003.
And again, we are heading towards 62 to 68 Exabytes per month in data exchange.
Now here’s the market size of cloud computing worldwide. We are hovering $116 billion and projected to quadruple in ten short years. So as you can see this is no fad. This is what I like to call a Global Macro-Trend.
So I hope you got the point, that this space has tremendous growth ahead.
Now to the company that creating waves, Arista Networks. Without sounding too geeky, this mid cap company at around 9 billion, supplies cloud networking solutions consisting of extensible operating systems, a set of network applications, and gigabit Ethernet switches. Lurking the shadows of the tech giants is sometimes where you’ll find winners with growing businesses.
So as our data consumption continues to exponentially grow, so will the demand for more storage. And as that grows, speed of data retrieval becomes a concern for cloud-reliant businesses. This is where Arista Networks is gaining tremendous relevance. This company actually sells the network switches that speed up communications among racks of computer servers packed into the data centers.
This ankle biter of a company, in this area, is rapidly growing and greatly cutting into, networking giant, Cisco Systems’s market share. In reference to the high speed network switching, its very clear what’s happening. The next obvious question is, why?
It’s really simple. Here’s why.
• Does Arista offer more ports? Check
• Is Arista more energy efficient? Check
• Is Arista optimized for cloud computing? Check
• Is Arista more expensive? No
Arista switch platforms start at a fraction of the cost of the market norm. Very disruptive. Also the company’s software centric approach to networking called SDN, which is short for software defined networking, has played a large role in the movement from older, more expensive, less agile methods of designing networks, like those of its competitors, mainly Cisco Systems.
In addition, as the sector grows and cloud computing adaptation increases in other industries, as well as internationally, Arista Networks, still, has a long runway ahead. Apart from the sales of its hardware, the company is also growing its servicing segment, which opens an avenue for recurring revenue.
While we are on the subject, Arista recently crossed over a billion in revenue in the trailing twelve months, with a net income of over $180 million dollars. As you can see, it has been steadily increasing since its Initial Public Offering a little over two years ago.
Now be aware, Cisco systems is not just going to rollover and just hand over their business. Cisco has accused Arista of intellectual property infringement and judges have sided with both companies, depending on the court level.
If the ruling should go against Arista, the company will have use US based sources to manufacture its products, which in turn will reduce its gross margin by 4 to 5% to around 60%. Which in the grand scheme of things isn’t a big deal.
With all of that considered, I still think Arista is a long-term pick sitting on a long-term trend. And FYI, Arista raised guidance on earnings once again.
Until next time.