What Happened?
Shares of cloud security and performance company Cloudflare (NYSE: NET) fell 8.5% in the afternoon session after fears of disruption from artificial intelligence spooked investors, leading to a broad-based sell-off. The market witnessed a "basket-style reaction," a term for when investors reduce exposure to an entire segment without differentiating between individual company business models. The negative sentiment was widespread, pulling down all of the Magnificent Seven stocks and sending the S&P 500 Information Technology Sector down nearly 3%.
Adding to the pressure, AI company Anthropic triggered a wave of selling across the broader software industry after releasing a suite of automation tools specifically tailored for the legal profession.
The market’s reaction reflected a systemic fear: if a foundational model company can successfully productize its agentic capabilities to cannibalize a specialized vertical like legal tech, no software niche is safe.
The stock market overreacts to news, and big price drops can present good opportunities to buy high-quality stocks. Is now the time to buy Cloudflare? Access our full analysis report here, it’s free.
What Is The Market Telling Us
Cloudflare’s shares are very volatile and have had 22 moves greater than 5% over the last year. In that context, today’s move indicates the market considers this news meaningful but not something that would fundamentally change its perception of the business.
The previous big move we wrote about was 6 days ago when the stock dropped 9.9% on the news that the stock pulled back as investors took profits, following a multi-day rally, as the company's AI capabilities were validated. The preceding rally was fueled by the surge in autonomous AI agents built on Cloudflare's infrastructure. The virality provided a powerful "proof of concept," convincing investors that Cloudflare is a primary beneficiary of the AI economy as developers increasingly use its global network to scale high-profile autonomous systems. This underscored the company's position not just as a security provider, but as the essential "Edge" for the next generation of Agentic AI: autonomous systems that require low-latency, globally distributed compute to function.
Cloudflare is down 14.8% since the beginning of the year, and at $167.10 per share, it is trading 34% below its 52-week high of $253.30 from October 2025. Investors who bought $1,000 worth of Cloudflare’s shares 5 years ago would now be looking at an investment worth $2,029.
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