Naughty Flicks

Skip NavigationMarketsBusinessInvestingTechPolitics & PolicyVideoWatchlistInvesting ClubPROLivestreamMenuI like to invest in momentum stocks and high-growth companies, and I’m willing to take on more risk if there is potential for bigger returns. That’s what I see in my latest buy, Cloudflare . The San Francisco-based company operates a global network that helps businesses improve the performance and security of their websites and applications. (Think: faster load times and more protection from cyberattacks.) Key points Revenue grew 36% last quarter, faster than several of Cloudflare’s cybersecurity peers. Existing customers are spending more, allowing Cloudflare to grow even before it brings in new business. AI is creating new opportunities for the tech company. Cloudflare has spent roughly 17 years building its global network. Now that it’s expanding into AI, it’s helping companies build AI applications and control how bots and agents interact with their websites and data. Why I’m buying It’s growing faster than its peers Cloudflare’s revenue grew 36% year over year last quarter to $696 million, well ahead of cybersecurity competitors CrowdStrike and Zscaler, which have recently been growing in the mid-20% range. What stands out to me is that Cloudflare is accelerating even as it gets bigger. Companies typically have a harder time maintaining rapid growth as they scale, but Cloudflare’s growth is actually speeding up. The company protects roughly 20% of websites worldwide, and in testing of its secure-access technology, it performed faster than Zscaler and Palo Alto Networks. There’s more to sell to existing customers Existing customers are spending about 20% more with Cloudflare than they were a year ago, giving the company another engine for growth with the customers it already has. NET YTD mountain Cloudflare, YTD That’s especially important as Cloudflare gets bigger, because it means growth doesn’t depend entirely on constantly finding new customers. AI is creating new ways for Cloudflare to make money Think of Cloudflare as a toll collector on AI traffic. As AI companies send bots across the internet to access content, Cloudflare can sit in the middle of that traffic, helping website owners decide which bots to allow, block or charge for access. Cloudflare is also using OpenAI models to help customers find and fix vulnerabilities in their code, another way AI could make its security products more valuable. Why now? Cloudflare has already had a huge run, but I think the momentum can continue. The stock recently hit an all-time high and is up about 68% this year. It’s also trading above its 20-, 50-, 100- and 200-day moving averages, another sign that investors continue to push the stock higher. That strength comes at a price. Cloudflare trades at roughly 40 times sales, a significant premium to other major cybersecurity stocks. But it also has the fastest growth rate in the group. Bottom line If the broader market pulls back, a stock that has risen this far this fast could be among the first to sell off. That’s why I wouldn’t ignore the risks at this price. If you buy the stock, I would use a stop order to help protect against the downside. But of all the stocks in this group, this one is the best in the space. And as AI creates more activity across the internet, Cloudflare has more opportunities to help manage and secure it. The next big test will be its third-quarter earnings. If Cloudflare can keep delivering strong growth, I think the stock can keep working higher. Disclosures: Grasso owns this position personally. 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. This content is provided as part of our editorial output for informational purposes only and does not constitute 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. THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSTITUTE 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.Read More