Key Takeaways
- Cloudflare stock fell 14% in the week to Oct. 30, and Datadog fell 13%, though neither company reported weak results.
- ServiceNow’s and Fortinet’s reports revived fears that AI will disrupt software, and Friday’s tech selloff did most of the damage.
- Cloudflare’s Nov. 5 report has to clear a guide of 31% revenue growth and show gross margin holding near 73%.
- The stock is cheaper but still richly valued, and Datadog’s Nov. 4 report lands first.
Cloudflare (NET) stock fell 14% in the week to Oct. 30, closing Friday at $280.70, and Datadog (DDOG) fell 13% to $235.27. Neither company reported weak results. Both got caught in a software selloff that peaked on Friday.
Software’s bad week
ServiceNow and Fortinet reported after the close on Oct. 28. The next day, Fortinet fell about 20% after cutting its full-year service revenue forecast, and ServiceNow fell 27%, its worst day on record. That revived the fear that AI is disrupting software.
Then on Friday, Oct. 30, weak results from Amazon and Intel deepened doubts about whether AI spending will pay off. The Nasdaq 100 fell 3.5%, Datadog lost 11.5%, and Cloudflare lost 9.5%.
Cloudflare had started the week right after a 7% jump on Oct. 23, as the PHP flaws lifted security stocks. CEO Matthew Prince said exploit attempts on Cloudflare’s network climbed from thousands before the flaws were disclosed to millions after.
The one company-specific item was a disclosure, not a result. On Oct. 26, Cloudflare reported that a bug in one Workers AI model sent 155 responses containing other customers’ data between Aug. 27 and Sept. 9. The company says it fixed the issue on Sept. 9 and found no evidence of deliberate exploitation.
Datadog is in the same boat
Datadog also had no news of its own. Its second-quarter revenue grew 36% to $1.12 billion, but its third-quarter guide of $1.135 billion to $1.145 billion implies roughly 29% growth from a year earlier. It reports before the open on Nov. 4, a day ahead of Cloudflare, so a clean beat there would ease some of the pressure on its neighbor.
The bar for Nov. 5
For the third quarter, Cloudflare guided to $736 million to $737 million of revenue (31% growth) and $0.34 of adjusted EPS. Analysts expect revenue to more than double from 2025 to 2028:
Nothing in the selloff gives them a reason to cut those numbers.
Gross margin is the weak spot. Cloudflare’s GAAP gross margin fell to 74.5% in fiscal 2025 from 77.3% a year earlier, a decline management has tied to carrying more traffic:
On a non-GAAP basis, gross margin was 73.1% in the second quarter, down from 76.3% a year earlier.
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Wait for the report
Even after Friday’s drop, Cloudflare trades near 190x forward earnings, above its 173x average since mid-2023. The $345 consensus target sits about 23% above Friday’s close, while the Street low remains Guggenheim’s $160, with a Sell rating.
The selloff made Cloudflare cheaper, but at near 190x earnings it still needs a clean quarter. A full-year revenue guide raised above the current $2.864 billion to $2.870 billion range, with non-GAAP gross margin at or above 73.1%, would support the price for another quarter. A margin that slips again would give the Sell side more weight.
The bigger prize is agent payments. Management wants its first revenue from them by the fourth-quarter report, expected in February.
So what is Cloudflare stock actually worth?
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Disclaimer:
Please note that the articles on TIKR are not intended to serve as investment or financial advice from TIKR or our content team, nor are they recommendations to buy or sell any stocks. We create our content based on TIKR Terminal’s investment data and analysts’ estimates. Our analysis might not include recent company news or important updates. TIKR has no position in any of the stocks mentioned. Thank you for reading, and happy investing!
