International Business Machines Corporation IBM and Arista Networks, Inc. ANET are leading players in the enterprise and data-center networking arena, focusing on infrastructure vital to cloud computing and AI (artificial intelligence) workloads. IBM offers cloud and data solutions that aid enterprises in digital transformation. In addition to hybrid cloud services, the company provides advanced information technology solutions, computer systems, quantum computing and supercomputing solutions, enterprise software, storage systems and microelectronics.
On the other hand, Arista offers one of the broadest product lines of data center and campus Ethernet switches and routers in the industry. It provides routing and switching platforms with industry-leading capacity, low latency, port density and power efficiency.
With a focus on hybrid cloud and AI, both IBM and Arista are strategically positioned in the cloud infrastructure market with overlapping relevance in networking infrastructure, enterprise IT solutions and cloud/data-center ecosystems. Let us delve a little deeper into the companies’ competitive dynamics to understand which of the two is relatively better placed in the industry.
IBM is poised to benefit from healthy demand trends for hybrid cloud and AI, which drive the Software and Consulting segments. The company’s growth is expected to be aided by analytics, cloud computing and security in the long term. With a surge in traditional cloud-native workloads and associated applications, along with a rise in generative AI deployment, there is a radical expansion in the number of cloud workloads that enterprises are currently managing. This has resulted in heterogeneous, dynamic and complex infrastructure strategies, which have led firms to undertake a cloud-agnostic and interoperable approach to highly secure multi-cloud management, translating into a healthy demand for IBM hybrid cloud solutions.
In addition, the buyout of HashiCorp has significantly augmented IBM’s capabilities to assist enterprises in managing complex cloud environments. HashiCorp’s tool sets complement IBM Red Hat’s portfolio, bringing additional functionalities for cloud infrastructure management and bolstering its hybrid multi-cloud approach.
Despite solid hybrid cloud and AI traction, IBM is facing stiff competition from Amazon.com, Inc.’s AMZN AWS and Microsoft Corporation’s MSFT Azure. Increasing pricing pressure is eroding margins, and profitability has trended down over the years, barring occasional spikes. The company’s ongoing, heavily time-consuming business model transition to the cloud is a challenging task. Weakness in its traditional business and foreign exchange volatility remain significant concerns.
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Arista holds a leadership position in 100-gigabit Ethernet switches and is increasingly gaining market traction in 200- and 400-gigabit high-performance switching products. It is witnessing solid demand trends among enterprise customers backed by its multi-domain modern software approach, which is built upon its unique and differentiating foundation, the single EOS (Extensible Operating System) and CloudVision stack. Arista has made several additions to its multi-cloud and cloud-native software product family with CloudEOS Edge. It has introduced new cognitive Wi-Fi software that delivers intelligent application identification, automated troubleshooting and location services. The versatility of Arista’s unified software stack across various use cases, including WAN routing, campus and data center infrastructure, sets it apart from other competitors in the industry.
In addition to high capacity and easy availability, its cloud networking solutions promise predictable performance and programmability, enabling integration with third-party applications for network management, automation and orchestration. The company boasts a comprehensive portfolio with the right network architecture for client-to-campus data center cloud and AI networking, backed by three guiding principles. These include 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. Arista is likely to benefit from its software-driven, data-centric approach, which helps customers build their cloud architecture and enhance the cloud experience they offer their clients.
However, Arista remains plagued by high operating costs. Total operating expenses in second-quarter 2025 increased around 13.8% to $452.4 million, owing to a rise in headcount, new product introduction costs and higher variable compensation expenditures. Moreover, the redesigning of products and their supply chain mechanism has eroded margins. Although the company is witnessing increased demand, there are lingering supply bottlenecks for advanced products. Therefore, it is increasing orders for these components and trying to build up inventory, which is blocking working capital.
The Zacks Consensus Estimate for IBM’s 2025 sales and EPS implies year-over-year growth of 6.4% and 7.6%, respectively. The EPS estimates have been trending northward (up 1.6%) over the past 60 days.
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The Zacks Consensus Estimate for Arista’s 2025 sales and EPS implies year-over-year growth of 24.6% and 23.8%, respectively. The EPS estimates have been trending northward (up 9.8%) over the past 60 days.
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Over the past year, IBM has gained 23% compared with the industry’s growth of 17.7%. Arista has surged 56.9% over the same period.
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IBM looks more attractive than Arista from a valuation standpoint. Going by the price/earnings ratio, IBM’s shares currently trade at 20.58 forward earnings, significantly lower than Arista’s 45.38.
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Both IBM and Arista carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Both companies expect their sales and profits to improve in 2025. Long-term earnings growth expectations for IBM and ANET are 5.8% and 16.6%, respectively. Arista has a better price performance and better estimate revisions compared with IBM, although it is a bit expensive in terms of the valuation metric. Arista has shown steady revenue and EPS growth for years, while IBM has been facing a bumpy road. Investors looking for the “next wave” in AI and cloud infrastructure may lean toward Arista, while those seeking a broad, resilient tech play may favor IBM. However, Arista seems to hold a slight edge in most metrics and appears to be a better investment option at the moment.
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This article originally published on Zacks Investment Research (zacks.com).
