Why Shares of Arista Networks Are Surging Today

What happened

Shares of Arista Networks (NYSE: ANET) jumped on Friday after S&P Dow Jones Indices announced that the networking solutions provider would be added to the S&P 500 index. The stock was up about 9.1% at 11:35 a.m. EDT.

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So what

Arista will join the S&P 500 effective prior to the opening bell on Tuesday, August 28. The tech company is replacing GGP Inc. in the index as a result of that company's impending acquisition by Brookfield Property Partners LP.

Index funds that track the S&P 500 and attempt to match its performance will need to buy shares of Arista once it's included in the index. That could put upward pressure on the stock, at least in the near term.

In the long run, the nod from S&P Dow Jones Indices doesn't change the story for Arista investors. But it is an acknowledgement that the company has become important enough to be included in one of the most visible indices.

Now what

Arista last reported earnings on August 2, trouncing analyst estimates by reporting 28% revenue growth and 44% adjusted earnings growth on a year-over-year basis. After Friday's move, the company is valued at around $23 billion.

Many more investors will own a piece of this fast-growing company once it's included in index funds tracking the S&P 500. If the company can maintain its rapid-fire growth rate, the stock could continue to move higher.

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Timothy Green has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Arista Networks. The Motley Fool has a disclosure policy.