Latest / Bull Market Conversations with Fexingo: Rallies, Momentum, and Riding Market Strength / How Cloudflare Is Riding the June 2026 Bull Market
Transcript
- Lucas: We're recording this on Friday, June 26th, and the Nasdaq just had its worst week in a month — down nearly three percent over the last five sessions. But there's a handful of names that are actually up five percent or more in that same window, and one that really stands out to me is Cloudflare. Luna: Cloudflare's up about four point two percent this week, right? While the Nasdaq got hammered. That's a pretty big divergence. Lucas: It is. And it's not just this week. Since the start of the year, Cloudflare is up something like twenty-five percent, while the broad tech index is basically flat. So the question is: what's driving that outperformance, and is it sustainable? Luna: Before we get into the weeds — and I love getting into the weeds on this — I want to flag something. We keep this show completely ad-free, and that's a choice we make because we think you shouldn't have to sit through a mattress commercial to hear about market trends. Lucas: Absolutely. And if that matters to you, there's a simple way to support it. It's buy me a coffee dot com slash fexingo. No pressure, no perks — just knowing that the content stays clean. Luna: Right. And speaking of clean content, let's talk Cloudflare. What did they do in their most recent quarter that got investors excited? Lucas: Cloudflare reported Q1 2026 earnings back in May, and the headline number was revenue of $431 million — up thirty percent year-over-year. That actually accelerated from the previous quarter, which was around twenty-eight percent growth. And they raised their full-year guidance to $1.85 billion. Luna: Thirty percent growth in this environment is impressive. Especially when you look at some of the legacy cloud players who are seeing growth slow to the teens. Lucas: Exactly. The narrative around Cloudflare has shifted from a pure content-delivery network to a broader platform play. They're now selling a full suite of security, zero-trust access, and edge-computing services. And that's where the real growth is: their developer platform, Workers, saw revenue grow more than fifty percent year-over-year. Luna: So enterprises are essentially building applications directly on Cloudflare's edge network rather than going through a traditional cloud provider like AWS or Azure. That's a big strategic shift. Lucas: It is. And it's one reason why the stock commands a premium valuation. Cloudflare trades at about twelve times forward sales. That's expensive by any historical measure, but for a company growing at thirty percent with expanding margins, the market is willing to pay up. Luna: But that premium also makes it vulnerable to any hiccup. If growth slows even a little, that multiple could contract fast. Lucas: That's the risk. And we've seen that play out with other high-growth names this year. But Cloudflare's management has been pretty consistent on guidance. They've beaten estimates for seven straight quarters. The question is how much of that is already priced in. Luna: And then there's the competitive landscape. Fastly reported earnings last week and their revenue growth was only about twelve percent. Akamai is growing even slower, around six percent. So Cloudflare is clearly taking market share. Lucas: Yeah, Fastly's numbers were disappointing. They cited pricing pressure and longer sales cycles. Cloudflare seems to have cracked the code on land and expand — they get in with a small security contract and then upsell the platform over time. Their dollar-based net retention rate is still above one hundred twenty percent. Luna: That's a key metric. It means existing customers are spending twenty percent more year-over-year. That's the kind of organic growth that investors love. Lucas: Now, the broader market backdrop matters here too. The Fed held rates steady at their June meeting, and Chair Powell reiterated that they need more data before cutting. That's generally negative for high-duration growth stocks because their future cash flows get discounted at higher rates. Luna: But Cloudflare is bucking that trend. Why do you think that is? Lucas: I think part of it is that Cloudflare's revenue is very recurring — over ninety percent is subscription-based. So visibility is high. And they're profitable on a free-cash-flow basis now, which wasn't true a couple of years ago. In Q1, they generated about $55 million in free cash flow, with a margin of nearly thirteen percent. Luna: So they're not just a growth story — they're also showing discipline on the bottom line. That combination is rare in this part of the market. Lucas: Exactly. And it's why you're seeing institutional investors rotate into names like Cloudflare even as they trim positions in unprofitable software companies. The market is rewarding execution. Luna: What about the valuation though? Twelve times sales — even with thirty percent growth — that's a high bar. Where does that compare historically? Lucas: Well, during the 2021 peak, Cloudflare traded at over fifty times sales. So twelve times is actually a significant compression. But it's still above the median for high-growth software, which is around eight to ten times. So the market is pricing in continued acceleration. Luna: And if we see a recession or even a slowdown in enterprise IT spending, those multiples could get cut in half. That's the bear case. Lucas: Right. And there's also the risk of competition from the hyperscalers. AWS launched a competing edge service called CloudFront that's pretty aggressive on pricing. Cloudflare's CEO, Matthew Prince, has said they compete on simplicity and developer experience rather than price alone. Luna: That's a tough sell if CFOs start tightening budgets. But so far, it's working. Lucas: One thing I find interesting is that Cloudflare's customer base is heavily tilted toward mid-market and enterprise. They have over 200,000 paying customers, but the top ten percent account for a huge chunk of revenue. That concentration risk is something to watch. Luna: So if one of those big customers churns, it could hurt. But I suppose that's the nature of enterprise software. Lucas: It is. And Cloudflare has been adding large customers at a good clip. They now have over 2,500 customers spending more than $100,000 annually, up thirty percent year-over-year. So the high end is growing. Luna: Let's zoom out a bit. Cloudflare is up four percent this week while the Nasdaq is down three. That's a seven percent relative outperformance. Do you think that's a signal that investors are rotating into quality growth? Lucas: I think it's part of a broader trend. Look at other names like CrowdStrike — up nearly three percent this week — and Datadog, up over five percent. These are companies with strong free-cash-flow margins, high net retention, and mission-critical products. The market is rewarding that. Luna: Meanwhile, Palantir is down over five percent this week. So there's a clear divergence even within the tech sector. Lucas: Right. Palantir is still not consistently profitable on a GAAP basis, and their government revenue is lumpy. Cloudflare, by contrast, has a much more predictable model. Luna: So if you're an investor looking for a growth stock that can weather a Fed hold and maybe even benefit from a rate cut later this year, Cloudflare fits the bill. But you have to be comfortable with that valuation. Lucas: And with the fact that any earnings miss could send the stock down twenty percent. That's the trade-off. But for listeners who want to dig deeper, I'd recommend looking at Cloudflare's annual investor day presentation from last month. They laid out a long-term revenue target of $5 billion, which implies a compound annual growth rate of about twenty-five percent over the next five years. Luna: That's ambitious. But if they execute, twelve times sales might end up looking cheap. Lucas: Exactly. And that's the bull case in a nutshell. As always, we'll be watching how the next quarter plays out. Cloudflare reports Q2 earnings in early August, and that will be a big test.