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Over the last 10 years, US stocks have been a phenomenal investment with the S&P 500 delivering an average total return of 15.6% a year. By comparison, UK shares in the FTSE 100 have only mustered a 9.4% average. And while that’s still ahead of its typical 8% yield, it’s nonetheless significantly behind its American peer index.
But what does this all mean in terms of money? For those who have been drip feeding £350 into an S&P 500 index tracker every month since February 2016, their portfolios have now reached £82 shy of £100,000. And of that near-six-figure sum, £57,918 is pure stock market profit.
Yet, for some intelligent stock pickers, their journey to £100,000 has been significantly faster, with some now sitting on close to £650,000! Here’s how.
Stock-picking power
By investing directly into the best and brightest businesses, investors can go on to earn some pretty remarkable returns. And that’s definitely been the case for shareholders of Arista Networks (NYSE:ANET).
Since February 2016, shares of the cloud networking enterprise have skyrocketed a staggering 3,391%. That’s the equivalent of a 42.7% annualised return – almost three times what the S&P 500 achieved. And anyone who’s been drip feeding £350 each month at this rate now has just over £643,336 in the bank.
Where did all this growth come from? The business has spent most of its existence establishing itself as a global leader in cloud infrastructure hardware and software, stealing market share from incumbents like Cisco Systems.
But this also perfectly positioned Arista to capitalise on the enormous AI data centre investments that kicked off in 2023. And the company quickly found itself at the heart of an AI gold rush.
The result? Revenues for 2025 are forecast to reach $8.9bn versus $2.3bn in 2020, with some of the highest profit margins in the networking hardware sector.
Still worth considering in 2026?
With its market-cap now sitting at $173bn, it’s highly unlikely Arista shares will continue delivering an average 42.7% annual return moving forward. But that doesn’t mean the growth story’s over.
Despite concerns surrounding AI spending, companies like Microsoft and Meta continue to charge ahead with hundreds of billions in AI-related spending this year. That’s terrific news for Arista since it just so happens that Microsoft and Meta are two of its biggest customers.
Of course, that also reveals a critical risk. Arista’s skyrocketing AI-related revenues stem almost exclusively from these large hyperscalers. As such, if management decides to slow AI spending then, at its current premium valuation, Arista Networks’ share price could be exposed to some serious volatility.
Even if AI spending remains robust, both of these customers are actively developing their own data centre hardware and software solutions. And given enough time, they may soon no longer need Arista to power their cloud and AI infrastructure.
Needless to say, it’s a significant risk. And it’s one that growth investors must consider carefully before thinking about investing in Arista. However, at a more attractive price, that could be a risk worth considering, in my opinion. And it’s not the only exciting US stock on my radar right now.
