Latest / Bull Market Conversations with Fexingo: Rallies, Momentum, and Riding Market Strength / How Cybersecurity Stocks Are Diverging in the June 2026 Bull Market
Transcript
- Lucas: CrowdStrike is up nearly 4 percent this week. Cloudflare is down almost 8 percent. Two cybersecurity companies, both considered high-growth, but the market is treating them like they're in completely different industries. Luna: It's a pretty stark divergence. And it's happening while the Dow and Russell 2000 are rallying — the Dow at 51,200, the Russell up over 3 percent in five days. Lucas: Right. So the broad market is healthy, but within that, investors are making sharp distinctions. CrowdStrike, ticker c r w d, closed at $682.80. Cloudflare, ticker N-E-T, at $228.48 — down from where it was just a few weeks ago. The question is: why is one being rewarded and the other punished? Luna: I think part of it comes down to what each company actually sells. CrowdStrike is endpoint security — it's on every laptop and server. Cloudflare is more about network security and content delivery. Lucas: Exactly. And in this market environment, where there's still nervousness about growth stocks — remember, the Nasdaq is flat to slightly negative over the past week — investors are gravitating toward companies with predictable, high-margin recurring revenue. CrowdStrike's subscription model is very sticky. Their dollar-based net retention rate has been above 120 percent for years. Luna: But Cloudflare has strong retention too, right? They reported 115 percent net retention last quarter. Lucas: They do. But Cloudflare's business is more capital-intensive. They operate a global network of data centers. That means higher depreciation and more sensitivity to interest rates. Even though the Fed held rates steady this week at 3.62 percent on the daily fed funds rate, the market is still wary of companies with big infrastructure spend. Luna: So it's not just about growth — it's about the quality of that growth. How much cash do you actually generate after you pay for the servers? Lucas: Right. CrowdStrike's free cash flow margin has been expanding. Cloudflare's is positive but thinner. And when you layer on valuation — Cloudflare trades at over 12 times forward sales, CrowdStrike at around 15 — but CrowdStrike has higher gross margins, around 78 percent versus Cloudflare's 77 percent. Luna: It's interesting because both companies have been growing revenue at about 30 to 35 percent year-over-year. So the growth rate isn't the differentiator. Lucas: No, it's the market's perception of durability. And there's another factor: the rotation we've been talking about on this show. Money is flowing from high-growth, high-multiple tech into value and small caps. The Russell 2000 is up 3.1 percent this week. But within tech, investors are also rotating from 'promising' to 'proven.' CrowdStrike is proven. They've been profitable on a GAAP basis for several quarters. Luna: Cloudflare only turned GAAP profitable last quarter. And that was a surprise — they beat expectations. But apparently the market wanted more. Lucas: The market wanted a bigger beat. Cloudflare's revenue came in at $493 million, barely above the $490 million consensus. CrowdStrike, by contrast, reported $1.1 billion in revenue and guided higher. That 10 percent difference in 'beat magnitude' matters in a risk-off rotation. Luna: So what's the lesson for investors? If you own a cybersecurity stock, should you be looking at margins and free cash flow more than the growth rate? Lucas: I think that's exactly right. In a bull market that's broadening out — the S&P 500 at 7,431, but the equal-weight index is actually outperforming — the market is rewarding companies that can show they're not just growing, but growing profitably. And this is where maybe we can tie this to what we do here. Luna: Go ahead. Lucas: If these kinds of conversations — breaking down why one stock moves and another doesn't — if that helps you think about your own portfolio differently, that's exactly why we make this show. And we keep it ad-free, which means it's supported entirely by listeners. If you find value in it, you can throw a few bucks our way at buy me a coffee dot com slash fexingo. Luna: Yeah, it's a small gesture but it honestly makes a big difference for us. Keeps the lights on and the research flowing. Lucas: So back to the divergence. I think the next catalyst for both companies will be their upcoming quarterly reports. CrowdStrike reports in late August, Cloudflare in early August. If Cloudflare can show expanding margins and a guidance raise, we might see that stock catch up. Luna: But if CrowdStrike continues to post blowout numbers, it could pull further ahead. And then you have to ask: is there room for both to be winners in a bull market, or is this a zero-sum game? Lucas: I don't think it's zero-sum. Cybersecurity spending is still growing at a double-digit clip. The total addressable market is huge. But in the near term, momentum is a powerful force. CrowdStrike has it. Cloudflare has lost it. Luna: So for someone looking to buy Cloudflare at these levels, it's a bet that the market is overreacting to a small miss. Lucas: Exactly. And that's a legitimate thesis. The stock is down 7.8 percent in a week — that's a big move for a company that still grew 30 percent. But you need to be comfortable with the volatility. CrowdStrike, on the other hand, is less volatile but also more expensive on a price to earnings basis. Luna: Which one would you rather own right now? Lucas: I tend to favor the one that's already showing it can deliver in this environment. That's CrowdStrike. But I also think Cloudflare has a compelling long-term story — especially if they can get their free cash flow margin above 20 percent. As of last quarter, they were at 17 percent. Luna: So it's a tale of two cybersecurity stories. One is the market darling, the other is the value play. Lucas: Right. And that's the kind of nuance that gets lost when people just talk about 'tech stocks' as a group. In this bull market, the details matter more than ever. Luna: Alright, let's keep an eye on both. And if you're watching these names, pay attention to the next earnings — that's where the next leg will be decided. Lucas: Absolutely. Thanks for listening, everyone. We'll be back tomorrow with another episode.