What Happened:
Shares of internet security and content delivery network Cloudflare (NYSE:NET) fell 5.64% in the mid-day session after the tech strength in the first half of 2023 and the AI-based rally of May 2023 into early June 2023 took a breather as investors debated the future of interest rates and whether to take profits here. On the 5th of June, UBS analysts initiated coverage of the stock with a price target of $55 and a Sell rating and noted that investors are pricing in too much near-term AI benefit. The analysts added that "While we expect Cloudflare's distributed edge can play a role in the GenAI ecosystem longer-term, we think near-term expectations are being conflated with the opportunities of companies more directly tied to centralized compute."
What is the market telling us:
Cloudflare's shares are very volatile and over the last year have had 71 moves greater than 5%. In context of that, today's move is indicating the market considers this news meaningful but not something that would fundamentally change its perception of the business. The previous big move was about one month ago, when the company dropped 21.9% on the news that the company reported first-quarter revenue that narrowly missed analysts' forecasts, but its earnings per share and free cash flow came in above expectations. In addition, sales guidance for the next quarter fell short of the consensus estimates, and the full-year guidance was lowered, with management citing a weaker macro environment and longer sales cycles where potential customers may be scrutinizing their spend more.
Cloudflare is up 44% since the beginning of the year, but at $61.91 per share it is still trading 21.2% below its 52-week high of $78.61 from August 2022. Investors who bought $1,000 worth of Cloudflare's shares at the IPO in September 2019 would now be looking at an investment worth $3,440.
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