No. of Recommendations: 12

I have linked to this post before, but instead of commenting on Nutanix, with new information, I decided why. Yes I will get to Nutanix. But if investing is about printing cash, then we should look at companies that print cash despite competing in what is suppose to be a mature market and against industry giants with operating margins larger than any companies of this size that I have ever seen. Perhaps it is an indication of something very big, perhaps not, who knows.

Nvidia is the same, competing against Intel in many respects, with AMD always at its tail, but really no one else in sight.

These articles about Arista go back to at least 2015. The above is another bear analyst changing his tune in a very dramatic way. Not because his firm needs to provide publicity for Arista, but because fundamentals forced it upon him. I have no doubt that he is still underestimating Arista going forward.

It is all in the software. When hardware has no differentiation, or is good enough that you can go either way (e.g. Samsung vs. Apple, Samsung has better hardware hands down, but Apple is good enough and you would never buy a Samsung or never buy an Apple precisely because of the specific software no matter the hardware difference, as long as it is good enough) it seems that this is the case with Arista. But to further benefit, Arista’s software makes it off the shelf with merchan silicon hardware (that can basically natively port to any new merchant silicon with at least a 6 month o market advantage over competition) also makes the hardware faster.

I think that is what the market is missing. Arista has not been shy of saying it. But it is the software. How else, competing against Cisco and Juniper et al. With spending only 10% of revs on marketing does Arista do what it is doing?

I will leave it at that. What it is doing is something that is very rare. Does not mean it won’t end at some point, all investments have risks, but what it has done so far evidences a serious competitive advantage related entirely to its software similar to how iOS gives Apple its competitive advantage whether or not its hardware is state of the art of not.

I will next look at TTD to see if TTD, despite disappointing Wall Street this time around, may have similar attributes worth diversifying into given the beating its share price took post earnings. The beef against TTD is that its margins would have to cave overtime and revert more to the mean. That is where one can tell with TTD whether or not they too will be or will not be extraordinary long-term.

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Thanks Tinker. Love this post. Looking forward to the next one.

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