Latest / Bull Market Conversations with Fexingo: Rallies, Momentum, and Riding Market Strength / How Cloudflare Became a Bull Market Darling in July 2026
Transcript
- Lucas: The Nasdaq was down one percent for the week as of this afternoon, and a lot of the high-growth names — Shopify down three point six, CrowdStrike down two point three, Datadog down two point eight — they all got hit. But then you look at Cloudflare, ticker N-E-T, and it's up seven point eight percent over the same five days. That is an outlier worth understanding. Luna: Seven point eight percent in a week where the index is red and a lot of its peers are getting clobbered — that's not just noise. What happened? Lucas: I think the story here is that Cloudflare is becoming the infrastructure layer for a specific kind of AI traffic that's actually materialising now — not just promises. Their network handles a huge share of the API calls that power things like real-time inference, model serving, and edge compute. And when you look at their product announcements from the past quarter, they've been quietly positioning themselves as the plumbing for what's being called 'reasoning at the edge.' Luna: I think there's a bunch of people out there who are paying attention to the show and getting real value out of the conversations. And it's worth mentioning — this show doesn't run ads, it's entirely supported by listeners who chip in a few bucks a month over at buy me a coffee dot com slash fexingo. That's literally what funds making this many episodes and keeping it ad-free. So if the show's been useful to you, that's the button. Lucas: Yeah, and we mean it — it's a small group that already does it, and it makes a real difference. So anyway, back to Cloudflare. The reason I think this matters is that the market is still trying to figure out which AI plays are real. In the first half of 2026, you had a lot of names riding the wave just because they mentioned AI in an earnings call. Now the market is getting more discerning. Luna: Right, and Cloudflare's gain stands out because it's happening while the broader growth trade is under pressure. The Russell 2000 was down over two percent this week, and the Nasdaq's been sliding. So what specifically is driving the bid into NET? Lucas: A couple of things. First, there was a report earlier this week from a sell-side firm that did a deep dive on Cloudflare's network utilisation data and concluded that their revenue from ai related workloads could double year-over-year in the second half of 2026. That's not priced into consensus estimates yet. Second, there's a narrative shift around edge computing — a lot of the early AI deployments were done in massive centralized data centers, but as latency requirements get tighter, more computation is moving to the edge. Luna: So Cloudflare is essentially a proxy for edge AI adoption. But how much of this week's move is just momentum — the stock had been lagging for a while, and this could be a catch-up rally? Lucas: That's a fair question. If you look at the chart, Cloudflare was actually flat to down for the month of June while the Nasdaq was hitting new highs. So there's an element of re-rating. But I'd argue the fundamentals are improving too. Their Workers platform — which lets developers run code on Cloudflare's network without provisioning servers — has been gaining traction. And they've rolled out new security features specifically for AI workloads, like protecting APIs from prompt injection attacks. Luna: That's interesting because security is usually a separate budget line. If Cloudflare can bundle edge compute with security, they become stickier. But what about the valuation? Cloudflare has always traded at a premium — is this move justified? Lucas: It's not cheap. The stock trades at around fourteen times forward sales, which is high even for a growth name. But the company is also generating positive free cash flow now, which wasn't the case a couple of years ago. So the quality of the revenue is improving. And if you believe the AI edge thesis, the addressable market is enormous. The question is execution. Luna: Let's talk about the competitive landscape. You've got Cloudflare, but you also have Fastly, Akamai, and even the big cloud providers like AWS with their own edge offerings. What's Cloudflare's moat? Lucas: Cloudflare's moat is their network architecture. They operate one of the largest distributed networks in the world, spanning over three hundred cities. And because they handle a massive amount of internet traffic already — something like twenty percent of the web — they have a data advantage. They can optimise routing in real time based on traffic patterns that competitors don't see. Plus, their pricing model is disruptive. They offer a generous free tier that gets developers hooked, and then upsell them on enterprise features. Luna: So it's a land and expand strategy. That's worked for a lot of SaaS companies. But in this environment, where interest rates are still at three point six three percent and the Fed isn't cutting anytime soon, high-growth names need to show real earnings power. Is Cloudflare there yet? Lucas: They're getting closer. In their most recent quarter, they reported adjusted operating margins north of fifteen percent, which is a huge improvement from a few years ago when they were barely breakeven. And they guided for revenue growth around twenty-seven percent for the full year. So you have a company growing at nearly thirty percent with expanding margins — that's a combination the market likes. The question is whether that growth rate is sustainable as the base gets larger. Luna: And that's where the AI tailwind comes in. If AI workloads really do double for them, they could maintain that growth rate longer than expected. But I want to push back a little — a lot of companies are claiming AI tailwinds. What makes Cloudflare's different? Lucas: Because it's not just a story. They have actual usage data. Their network is processing trillions of requests per month, and they can see the mix shift. In their last earnings call, the CEO mentioned that requests to their AI gateway product — which proxies API calls to large language models — grew by over three hundred percent quarter-over-quarter. That is real adoption. Luna: Three hundred percent is a big number. But it's from a small base. How much revenue does that actually represent? Lucas: They haven't broken it out specifically, but analysts estimate it's still less than five percent of total revenue. So the impact on the income statement is small today. But the market is forward-looking. If that product line scales, it could add several hundred million dollars in revenue over the next two to three years. And because it rides on their existing network infrastructure, the incremental margins are very high. Luna: So it's an option on future growth. That's what gives the stock its premium. But in a week where the broader market is rotating out of growth, why is Cloudflare the exception? Is it just the specific catalyst from that analyst report, or is there something else? Lucas: I think there's also a narrative around 'digital infrastructure' that's becoming a safe haven within tech. The same week Cloudflare was up, you also saw some strength in names like Equinix and Digital Realty — the data center REITs. The logic is that regardless of which AI company wins, they all need compute and networking. Cloudflare is part of that essential infrastructure layer. Luna: That makes sense. So the trade is not about betting on a single AI application, but on the plumbing that all AI applications will use. That's a more diversified bet. Lucas: Exactly. And that's why I find this week's move instructive — it's a signal that the market is starting to differentiate between pure hype and structural demand. Cloudflare has the network, the customer base, and the product roadmap to capture that demand. The risk is execution and competition, but the setup is compelling. Luna: One thing I want to circle back to — you mentioned the prediction market optimism around tech. There was a headline this week about traders on Kalshi betting the Nasdaq-100 will end 2026 above 30,000. That implies a pretty strong second half. Does that sentiment spill over into names like Cloudflare? Lucas: It probably does, indirectly. If the overall market is expected to be strong, high-beta names tend to outperform. Cloudflare's beta is around one point three, so it's more volatile than the index. In a rising market, that works in your favor. But it also means the downside could be sharp if sentiment shifts. So you need to have conviction in the underlying business. Luna: What's your takeaway for listeners who are considering Cloudflare here? Is it a buy on strength, or should they wait for a pullback? Lucas: I'm not going to give individual stock advice, but I'll say this: whenever a stock has a week like this, you have to ask whether the thesis has changed or if it's just noise. In Cloudflare's case, the thesis around edge AI and infrastructure is intact and arguably strengthening. But the valuation is high, and the stock is up a lot in a short period. If you're a long-term investor, you might want to build a position gradually rather than chasing a seven percent weekly gain. Luna: That sounds prudent. And it fits with the broader bull market theme — we're in a phase where winners are emerging, but you have to be selective. Cloudflare's outperformance this week is a case study in how the market is rewarding companies with real AI exposure and a defensible moat. Lucas: Right. And we'll be watching to see if this momentum continues or if it fades as earnings season approaches. The next quarterly report will be the real test — we'll see if the revenue from AI workloads is starting to show up in the numbers. Luna: One more thing — the broader macro backdrop. The Fed minutes this week showed a 'family fight' over rates. With the effective fed funds rate at three point six three and no cuts imminent, growth stocks still face a headwind. Cloudflare is bucking that trend for now, but it's something to keep an eye on. Lucas: Absolutely. If rates start moving higher again, all high-duration assets — including growth stocks — will feel the pressure. But if the economy stays resilient and the AI adoption curve accelerates, companies like Cloudflare could continue to defy the macro gravity. Luna: So the bull market is alive, but it's becoming more nuanced. Not every tech stock gets a free ride anymore. Lucas: Exactly. And that's what makes this phase interesting. The easy money from the liquidity-driven rally is behind us. Now it's about fundamentals, execution, and having a real competitive advantage. Cloudflare is showing signs of having all three. Luna: Alright, that's a good place to leave it. Thanks, Lucas. Lucas: Thanks, Luna. Talk to you next time.