Arista Networks (ANET -11.20%) stock got hit with big sell-offs Thursday as the market reacted to the Trump administration’s new tariff policies. The company’s share price ended the day down 11.1% in a session that saw the S&P 500 fall 4.9% and the Nasdaq Composite sink 6%.
Yesterday, the Trump administration announced that a new 10% import tax on foreign-sourced products will take effect on April 5. On April 9, additional reciprocal import taxes will be placed on goods from a list of companies with which the U.S. has large trade deficits. The news prompted big sell-offs for the market at large, and the tech sector got hit particularly hard.
Arista Networks stock sinks on tariff news
Investors are worried that the Trump administration’s new tariffs could have a destabilizing impact on global trade and continue to weaken valuation multiples across the stock market. Additionally, Arista Networks relies on outside manufacturers to put its networking hardware products together — and it’s reasonable to expect that it will face higher costs soon. So even though the company has been seeing strong sales growth in conjunction with artificial intelligence (AI) trends lately, there’s a real risk that business performance will come in significantly lower than previously anticipated.
What’s next for Arista Networks?
With its last earnings update, Arista guided for sales to come in between $1.93 billion and $1.97 billion in the first quarter. The company also targeted a non-GAAP (adjusted) gross margin of approximately 63%. Given that the new tariffs will be implemented after the close of Q1, there’s still a good chance that the business will be able to meet or exceed those targets.
On the other hand, the new outlook on the tariff front suggests that the company’s gross margin could slip significantly and that sales for the rest of the year could wind up coming in below analyst expectations.
Keith Noonan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Arista Networks. The Motley Fool has a disclosure policy.