Latest / Bull Market Conversations with Fexingo: Rallies, Momentum, and Riding Market Strength / Why Cloudflare and Datadog Are Rallying Harder Than the Market
Transcript
- Lucas: The Nasdaq Composite closed at 26,344 yesterday — another fresh all-time high. That's a 1 percent move over the last five days. Respectable. But underneath that number, there is a much bigger story happening in a handful of individual names. Luna: You're talking about Cloudflare and Datadog, I assume. They've both ripped over 7 percent in the same five-day window. Lucas: Exactly. Cloudflare is now at 216 and change. Datadog at 222. That's not just outperformance — that's a doubling of the market's return. And this isn't tied to any single earnings report or product launch that I can find. It's a rotation. Luna: A rotation into what, specifically? Because the S&P 500 is also up — just not as much. So these aren't the only winners. Lucas: Right, but the magnitude is what caught my eye. Cloudflare and Datadog are both cloud infrastructure plays — they sell tools that sit underneath enterprise applications. Cloudflare does content delivery and security; Datadog does observability and monitoring. And what I think is happening is that the market is repricing the durability of their revenue. These companies have extremely high gross margins — Cloudflare's are around 78 percent, Datadog's are over 80. In a bull market that's starting to mature, investors are gravitating toward businesses where the cash flow is visible years out. Luna: So you're saying the market is rewarding predictability. But is that really a new theme? Large-cap tech has been getting that bid for a while. Lucas: It's not new, but it's intensifying. And it's narrowing. Look at the Russell 2000 — up 3.4 percent in the last five days, which is actually stronger than the Nasdaq. Small caps are rallying on a different thesis: rate sensitivity and domestic exposure. But within large-cap growth, the leaders are becoming very specific. It's not just 'buy all tech.' It's 'buy the tech with the highest retention rates and the lowest customer concentration.' Luna: That's a good point. CrowdStrike is up even more — 7.2 percent. Also security, also recurring revenue. So maybe there's a sub-theme here beyond just cloud. Lucas: Security absolutely fits. CrowdStrike, Cloudflare — they both benefit from the same macro tailwind: enterprises are still migrating to the cloud, and as they do, they need more protection and more reliability. That spending is sticky. And the market is willing to pay a premium for that stickiness right now. Datadog's price to sales ratio is around 18. Cloudflare's is about 22. Those are high multiples, but the market is looking at the growth runway and saying, 'I'll pay up because I can see where the revenue is coming from in 2027.' Luna: If today was actually useful to you, the way these stay ad-free is listener support — buy me a coffee dot com slash fexingo. That's really how this keeps going without any ads or sponsors. Lucas: Yeah, it's a small thing that makes a big difference for us. And it means we never have to sell you something you don't need. Luna: So back to these stocks — do you think this is just a momentum chase, or is there real fundamental support for these prices? Lucas: I think it's a mix, but more fundamental than people give it credit for. The interest rate environment is stable — the Fed funds rate is at 3.62 percent and hasn't moved in weeks. That removes a lot of the fear that growth stocks get crushed by rising rates. So investors feel safe extending duration on their cash flows. And when you have companies like Datadog growing revenue at 25 percent year-over-year, and Cloudflare at 30 percent, those multiples start to look more defensible. Luna: But there's also the APEC headlines this week — trade tensions with China flaring up again. That usually hits tech stocks that have supply chain exposure. Cloudflare and Datadog are mostly software, so they're relatively insulated. Could that be part of the bid? Lucas: I think that's absolutely part of it. If you're worried about tariffs hitting hardware companies, you rotate into software. Cloudflare and Datadog have minimal physical goods exposure. Their input costs are engineers and data centers, not semiconductors or raw materials. So they become a safe haven within tech. Luna: What about retail vs. institutional flows? Do you think this is big money moving or just a lot of social-media chatter? Lucas: Hard to separate perfectly, but the volume on Cloudflare and Datadog over the last five days has been above their 20-day averages. That suggests institutional participation. Retail tends to chase after the move has started. The volume spikes early in the week — Monday and Tuesday — look like accumulation. By Wednesday and Thursday, you see the price continue but volume taper. That's a classic institutional pattern: they buy in size early, then retail comes in later to push it higher. Luna: So if someone wanted to get in now, what's the risk? They've already run 7 percent in a week. Lucas: The risk is always mean reversion. If you look at the relative strength index for Cloudflare, it's above 70 — technically overbought. Same for Datadog. So a pullback of 3 to 5 percent wouldn't be surprising. But the bigger question is whether the thesis is intact. If enterprise cloud spending keeps growing — and all the data says it is — then a pullback is just a buying opportunity. The question is your time horizon. Luna: I think that's the right frame. It's not about timing the next week; it's about whether the underlying business is durable. And both of these have network effects — the more customers they add, the more valuable the platform becomes. Lucas: Exactly. Cloudflare's network gets smarter with every new site it protects. Datadog's monitoring becomes more accurate with more data. Those are classic moats. And in a bull market that's getting selective, moats are what investors are paying up for. Luna: So the takeaway for listeners is: don't just buy the index and assume you're getting the best returns. Look under the hood. The leaders right now are specific, and they have specific characteristics. Lucas: Right. The S&P 500 is up 1 percent this week. Cloudflare and Datadog are up 7. That's the difference between being in the right names and just being in the market. And that gap is likely to widen before it narrows. Luna: Alright, I'm going to keep watching those relative strength levels, but I think the story here is bigger than a one-week pop. Thanks for digging into the numbers. Lucas: Always. And if you want to keep having these conversations ad-free, you know where to find us. Until next time.