Cloudflare (NET): A 19% Pullback Creates a New Buying Opportunity
Cloudflare (NET) has recovered sharply from a recent sell-off, and we think the rebound presents an attractive opportunity to buy into a company benefiting from the growing demand for cybersecurity, cloud infrastructure and AI-powered applications.
The stock fell approximately 19% between October 9 and October 20 as investors pulled back from expensive software and AI-related stocks. But buyers quickly returned, helping shares recover above an important technical level.
More importantly, the company’s long-term growth opportunities remain intact.
Cloudflare operates a global network that helps businesses secure their websites, applications and internet traffic. It also provides a developer platform that allows companies to build and run applications directly on its network.
That combination gives Cloudflare exposure to two important areas of technology spending: cybersecurity and the infrastructure needed to support increasingly complex internet applications.
One of the most interesting developments is the rapid growth in automated traffic moving across Cloudflare’s network.
During the second quarter, management reported that non-human traffic had surpassed 50% of total network activity. Daily requests from AI agents increased more than 1,700% year over year.
We think those numbers illustrate an important shift in how the internet is being used.
As AI-powered applications and automated agents become more common, businesses will need infrastructure capable of handling growing volumes of traffic while maintaining security and performance.
Cloudflare is positioned to benefit because its existing network already supports both security services and application development. Rather than relying on a single product, the company can serve customers across multiple needs as internet traffic becomes more demanding.
The recent stock-price action also gives us reason for optimism.
Cloudflare shares reached approximately $361 on October 9 before falling to around $292 by October 20. The decline came during a broader sell-off in highly valued software and AI stocks.
But the stock’s longer-term upward trend held.
Cloudflare has been establishing a pattern of higher highs and higher lows since the spring. Its early September lows were around $270, while the October pullback found support near $285.
That higher low is significant because it suggests buyers are continuing to step in at progressively higher prices.
The recovery began on October 20, when shares briefly fell to $285 before rebounding to close around $292. The following session brought additional buying, and by October 23, the stock had jumped approximately 7% to close at $326.
That move also carried Cloudflare back above its rising 50-day moving average near $319, an encouraging sign that the broader uptrend remains intact.
Shares trade around $326, with the next important resistance level near $363, the stock’s recent October high.
A sustained move above that level would establish another higher high and could signal the beginning of the next leg of the rally.
Momentum indicators also support the possibility of further gains. Cloudflare’s relative strength index (RSI) fell into the low 30s during the October sell-off before recovering to approximately 51.
That reset leaves room for additional upside without the stock immediately appearing overextended.
For traders, the $299 level is worth watching. A closing price below that area would weaken the recent recovery and suggest that buyers have lost control of the short-term trend.
Longer-term investors can monitor the $285 support level, which marked the October low. A weekly close below that price would break the recent pattern of higher lows and weaken the bullish technical outlook.
Of course, valuation remains a significant risk.
At around $326 per share, Cloudflare trades at approximately 260 times the midpoint of its 2026 non-GAAP earnings guidance of $1.25 to $1.26 per share.
That’s an exceptionally high multiple, leaving little room for disappointing financial results or slower-than-expected growth.
The company’s next earnings report, scheduled for November 5 after the market closes, will therefore be an important catalyst.
Investors will be looking for evidence that demand for Cloudflare’s security and developer products remains strong enough to support its premium valuation.
We wouldn’t dismiss that risk. A stock trading at this multiple can experience sharp declines when expectations aren’t met, even if the underlying business continues to grow.
However, we believe the recent pullback and subsequent recovery offer an encouraging entry point for investors comfortable with volatility.
Cloudflare’s global network, expanding developer platform and exposure to rapidly growing automated internet traffic provide several potential sources of long-term demand.
And unlike some software stocks that have struggled to recover from the October sell-off, Cloudflare has already reclaimed its 50-day moving average while maintaining its broader upward trend.
At around $326 per share, we’re recommending Cloudflare as a higher-risk growth opportunity. With shares recovering from a 19% pullback, AI agent traffic expanding rapidly and an important earnings report approaching on November 5, we think the stock has a credible opportunity to challenge its recent highs and potentially move higher.
