Cloudflare (NET) has executed nearly flawlessly over the past year, yet the stock’s inability to sustain its rally may be delivering a far more important message. Despite re-accelerating growth while expanding its AI narrative, NET has failed to convert fundamentals into durable upside. Instead, price action is beginning to reflect a valuation regime that has become increasingly difficult to justify in a higher-rate, capital-constrained environment. As major support levels are tested and the stock completes a major topping pattern, the risk/reward has shifted decisively to the downside. Trade timing & technical outlook NET was recently rejected at its $210 resistance level, a zone that was previously support at the end of 2025. Since that failure, the stock has begun to roll over, with price now threatening to break below a major support level at $180. Head & shoulders formation: A decisive move below $180 would complete a multi-month head-and-shoulders top. Measured move target: The implied downside objective from this pattern points toward the $130 area. Trend deterioration: Momentum indicators and relative strength have rolled over, with NET underperforming the broader market despite a bullish S & P 500 backdrop. From a technical standpoint, the chart suggests distribution rather than consolidation, with rallies increasingly being sold rather than accumulated. Fundamentals Cloudflare’s operating performance has improved, but valuation has expanded far beyond what even optimistic growth assumptions can reasonably support: Forward P/E: ~160x vs. Industry Average ~22x Expected revenue growth: ~28% vs. Industry Average ~6% Net margins: ~-5% vs. Industry Average ~5% At roughly 40x forward sales, NET is valued as if it has already won the AI infrastructure race. Even best-in-class software peers with durable margins and free-cash-flow generation trade at less than half this multiple. Bearish thesis Valuation compression: At roughly 40x forward revenue, NET is highly vulnerable even if growth merely slows from exceptional to very good. The AI narrative masks CapEx spend: Cloudflare’s push into AI inference and edge compute requires significant investment while competing in increasingly commoditized markets, threatening free cash flow and long-term return on capital. Hyperscaler competition is intensifying: As Cloudflare moves up-stack into compute and storage, AWS and Azure are moving down-stack into bundled security, compressing Cloudflare’s differentiation. Options trade To express a bearish view with defined risk, I favor Buying the Feb 20, 2026 $190 / $150 Put Vertical @ $14.01 Debit Buy to open: Feb 20, 2026 $190 Put Sell to open: Feb 20, 2026 $150 Put Maximum risk: $1,219 (premium paid) Maximum reward: $2,781 if NET is at or below $150 at expiration Breakeven: ~$177.81 View this Trade in OptionsPlay for Updated Price This structure benefits from continued downside follow-through while capping risk if the stock stabilizes or rebounds on sentiment. Summary Cloudflare remains an industry leader in cybersecurity, but the stock has moved into a valuation zone where it is a liability. With technical damage mounting and multiples that leave no room for error, the balance of risk favors downside as the market reassesses what a sustainable valuation looks like in 2026. For investors willing to fade consensus optimism, NET presents an increasingly attractive asymmetric bearish setup. DISCLOSURES: None. All opinions expressed by the CNBC Pro contributors are solely their opinions and do not reflect the opinions of CNBC, or its parent company or affiliates, and may have been previously disseminated by them on television, radio, internet or another medium. THE ABOVE CONTENT IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY . THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSITUTE FINANCIAL, INVESTMENT, TAX OR LEGAL ADVICE OR A RECOMMENDATION TO BUY ANY SECURITY OR OTHER FINANCIAL ASSET. THE CONTENT IS GENERAL IN NATURE AND DOES NOT REFLECT ANY INDIVIDUAL’S UNIQUE PERSONAL CIRCUMSTANCES. THE ABOVE CONTENT MIGHT NOT BE SUITABLE FOR YOUR PARTICULAR CIRCUMSTANCES. BEFORE MAKING ANY FINANCIAL DECISIONS, YOU SHOULD STRONGLY CONSIDER SEEKING ADVICE FROM YOUR OWN FINANCIAL OR INVESTMENT ADVISOR. Click here for the full disclaimer.
