Herman Jin
Formerly in Asia FICC at Goldman Sachs, Macro & Semiconductor Investing
Cloudflare isn't worth buying while the market resets software valuations, and the bottom is far off. Even a company this strong, with a great story as the security tool everyone needs in the AI era, gets hammered on any slightly disappointing result. Software isn't useless; it just doesn't deserve these valuations, and owning it under a negative narrative is miserable. Jensen Huang's upbeat SaaS comments may not reflect his real view. x.com x.com
Cloudflare is a stock to avoid this year even though it is becoming essential, not obsolete, in the AI era. Markets are punishing companies that must prove Anthropic and OpenAI will not crush them, now or in the future, and that proof is too costly; a single story can sink the stock regardless of good results. Better to stick with businesses that directly add compute. x.com x.com
Cloudflare has one of the most ludicrous valuations relative to its actual performance. @ecommerceshares notes it has run since 2009 yet still has a -10% operating margin, surviving because fund managers keep buying the new stock it issues every quarter, equal to 18% of revenue, so breakeven is never required. x.com
Cloudflare at 38x NTM revenue and 150x NTM EBITDA is insane, so a decent return from here is unlikely even though it is the leader. That has never happened before without massive acceleration in growth rates and margin expansion. x.com
Cloudflare's importance becomes clearest during outages, when disruption exposes how much of the internet depends on its platform. That dependence makes the stock hard to sell despite its obscene valuation. x.com
Cloudflare's valuation, about 28.5x EV/ARR and 453x run-rate GAAP EBIT, leaves little room for its competitive risks. Its SASE and developer-platform businesses face Zscaler, Palo Alto and hyperscalers with far bigger budgets, and OpenAI and Anthropic may keep inference on their own backends. The bull case is crisp and arguably priced in: bot security and edge workloads matter more as agents spread, growth sped up from 27% to 34%, and weekly agent requests doubled in January. x.com
Cloudflare cannot justify a bullish view at a 10000x revenue valuation. x.com
Cloudflare is a key enabler of agentic AI and has been overly punished in the software selloff, setting up a 2026 re-rating. It supports OpenClaw, the self-hosted autonomous agent popular since February, as it shifts toward autonomous AI workflows. Paying customers rose 40%, yet only about 1% of 25 million websites pay, and it signed a landmark $130 million contract. Relative strength versus the software ETF and a 30%+ rally after washouts below the 200-day average point the same way. x.com
Cloudflare is the kind of name worth shorting: software stocks have been legitimately weak with moats in question, and some, like Cloudflare, still carry premium multiples. Cheap can get cheaper, as Duolingo fell from $520 to $250 and then to $90. Shorting hot momentum names like SanDisk or Applied Optoelectronics makes far less sense. x.com x.com
Security software is arguably more of an AI bubble than semiconductors. Firms are bid up to nosebleed multiples on moderate AI-related revenue acceleration while facing medium- to long-term risks from Microsoft, Google and the AI labs and a 10-year Treasury yield above 5%. Their forward P/Es rest on non-GAAP earnings that exclude large stock compensation. A reversal could come from results missing high buy-side bars, security share gains by Microsoft or Google, or AI lab security launches. x.com … Show more
Cloudflare is one of the names leading this market and likely to lead the next leg higher, as an emerging leader in data inference and a core piece of internet DNS infrastructure. That positioning helped it avoid sustained weakness like its 81% drawdown in 2022 and 50% pullback in April 2025. With the market within 3% of all-time highs, there is little reason to bottom fish in names still down 50%+, though Cloudflare remains very expensive. x.com x.com
ServiceNow's unexpected expense surge makes its rich valuation more vulnerable in a struggling software sector. Revenue rose 21%, but spending drove an EPS miss and one quarter of guided cRPO deceleration; wider market conditions could hurt near term. The 20% selloff looks excessive, and few software companies should benefit as much from AI. Management could deliver over 3-5 years, though the stock is only close to a buy again now; below $100 looks good for the long term. x.com x.com x.com x.com
