Mitchell Martan
Investment Researcher for The Long Investor, Economics/Finance Background
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.comÂ
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.comÂ
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.comÂ
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.comÂ
Cloudflare is a short because 45-50x sales is too much to pay for 35% growth. x.comÂ
Cloudflare is extremely expensive at 44 times trailing twelve-month sales, a valuation that makes Datadog look cheap. x.comÂ
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.comÂ
Cloudflare has never needed to break even because investors keep funding it. In business since 2009, it still runs a -10% operating margin, sustained by fund managers buying the new stock it issues every quarter, equal to 18% of revenue. It still trades at 31x 2026 revenue despite a supposed SaaS bear market. x.com x.comÂ
Sandisk still looks cheap despite a frothy market, because it actually makes money and data-center growth is strong. It should be able to keep that run going until high-bandwidth flash arrives around 2030, though the trade carries risk and may not work out. x.com x.comÂ
Cybersecurity has never been more important as reported vulnerabilities at Apple, Alphabet, Amazon and Microsoft go parabolic. That favors Rubrik, CrowdStrike, Cloudflare, Zscaler and Palo Alto Networks. x.comÂ
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
