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Recently, we have seen a quiet rise in shares of internet infrastructure, known as content delivery networks. Cloudflare, Akamai Technologies and Fastly. Cloudflare shares are up 121% from their February low. Akamai has risen 51% from its lows last November. And Fastly shares were like a roller coaster, but ended the year very confidently, soaring 151%.
These companies operate in a fairly straightforward industry. They create server nodes around the world and then help manage digital traffic to make everything run faster and more reliably. But this is not a new business. I consistently recommended Akamai in 2005 when the show started, and it performed great until the financial crisis hit.
Recently, they have focused more on cybersecurity and data collection, which is one of the reasons I continue to recommend Cloudflare. In general, the thesis about content delivery networks is that these companies thrive when internet traffic increases, and the emergence of AI agents has significantly increased this traffic.
I think this is the main reason for the success of these promotions. That's why they're on the rise, but the story of each one is very different. Let's start with Cloudflare. NET, which is the largest content delivery network. Its shares have risen by over 2,200% since going public in 2019. We've invited CEO Matthew Prince on the show many times, and he's been very apt in predicting what the advent of artificial intelligence will mean for the rest of the internet.
We last spoke with him in June. He said that traffic from AI agents has already surpassed traffic from humans. And it was a wonderful prediction. This is the point of agents. If you are comparing prices on something, you may only check a few sites, but an AI agent will visit thousands of pages to find the best deal for you.
So now there's a lot more web traffic, and someone like Cloudflare needs to help us deal with it. This is one reason why the stock continues to perform so well with steadily accelerating earnings growth over the past year or so. Next up—Akamai. Late last year, they announced a new initiative, the Akamai Inference Cloud, which is essentially a network of many smaller data centers spread around the world that help these AI models process data.
Imagine that we move from a period of training AI models to a world where we actually use these models at scale, and that requires a lot more infrastructure. In early August, we hosted Akamai CEO Dr. Tom Layton on the show for the first time in over 5 years. I'll let him explain himself what his company is trying to do.
We are unique in that we can provide AI infrastructure needs from core to periphery . So whatever task you have, whatever agent or model you're working with, if you need to train it—well, maybe we'll do it in the core. But real use , everyday use—this is the output when the model receives requests; it tells the robot to do something, and you want to do it alongside the robot or user so that it's fast, scalable, and efficient.
Since that interview, I've been thinking a lot about this Akamai plan. First, it makes sense that you need distributed data centers, especially as we move into things like this physical AI, because it requires a lot of bandwidth , and you want the infrastructure to be as close to the user as possible.
This reduces latency and speeds up work. Additionally, we have recently seen how massive central AI data centers are becoming politically toxic. It seems to me that Akamai's idea of building smaller data centers might be easier to implement, don't you think? This is not a year for investment for Akamai.
They have to spend a lot of the money they have on acquiring and building out infrastructure for their inference cloud, which will take a significant hit to profits. But management says there 's huge customer interest here, and they expect business to pick up in the fourth quarter to really blossom in 2027 .
By the way, last Thursday Akamai announced a big win with Anthropic worth $11.6 billion for a seven- year contract. Clearly, Anthropic needs this extra power and is willing to pay for it. By the way, that's $1.66 billion a year. Pretty impressive, considering that's more than a third of what Akamai is expected to earn this year.
At first, stocks jumped sharply in response, as they should have , but now they are losing all those gains, and more. Well, this looks like a buying opportunity to me. Finally, let's talk a little about Fastly. This is not a company I have spent much time with lately. I remember Fastly as a short-lived favorite of the pandemic era.
The stock skyrocketed at one point , largely because it was a content delivery network for TikTok, which was then rapidly gaining popularity. But then Fastly lost most of TikTok's business, and the stock collapsed. For years, it looked like a broken momentum growth stock that was losing money. They were not making a profit until last year.
Recently, however, the stock has seen incredible growth, rising 159% year-to-date thanks to impressive financial performance. If that wasn't enough to get Wall Street's attention, Fastly found itself back in the spotlight last week . First, the company held an investor day last Tuesday, where management explained how Fastly is transitioning from a simple content delivery network to a much more interesting cloud-based solution fueled by the rapid growth of web traffic through all of this AI era.
Second, it happened right when everyone realized the power of Meta's Muse platform, which significantly fueled interest in the stock. Ultimately, the development of large-scale AI has made all three of these content delivery networks big winners. So, did you miss your chance, or can the stock continue to rise?
A difficult question. I love Cloudflare, but it's selling for 279 times this year's earnings . On the other hand, these stocks have always been expensive, and if you let that scare you, you would miss out on huge profits. However, if you want to buy Cloudflare now, I recommend waiting for a significant pullback in the market.
Considering Iran and the Federal Reserve, I'm sure someone will give you that opportunity. Fastly has a more reasonable valuation, trading at more than 50 times this year's earnings, but it's still quite expensive and the stock tends to be wildly volatile. I 'll be honest, this is the company I have the least confidence in .
So again, I strongly advise you to wait for a lower entry point. But Akamai, I think you can buy right now because it's cheap. Selling for less than 16% of this year's earnings forecasts, you're essentially getting their latest partnership with Anthropic, which I think is awesome, for free. Sure, they're having a bad year because of all the expenses I mentioned, but that's going to change for the better soon.
Here is the main conclusion. One of the side effects of the AI revolution is that it is already creating an insane amount of web traffic, and someone needs to help us keep the internet running smoothly. This is where Cloudflare, Fastly, and Akamai come to the rescue. Although at this point, Akamai is the only company that is cheap enough that I can strongly recommend it.
I want to take a few calls, and I want to start with Linda from Pennsylvania. Lindo. Hello, Jim. May God bless you and Lisa. I feel like you are part of my family, and when you are on vacation, I love all the extra research you provide me. And I hope all is well with Norman and the boiler . Jim, I'm calling about an IPO that I've been trading since inception; I made money, but it has dropped by 26% since April.
I know there are debts, and you had Michael and Trader yesterday. So I'm wondering if I should cash it in and maybe wait for something better, or stay? Well, Linda, first of all, thank you for those kind words and thank you for what you said about Lisa. You know, she's the one who makes me work, she says, "You need to get some rest, Jim." You really should do this.
So that's a great observation. I really like Michael and Trader. The stock is still almost doubled, it has now doubled since going public. I have tremendous faith in him. Stocks really lose a lot of money. So the question is: do you have the stamina for it? If I were you , I would say: you know what, I want a small position in CrowdStrike, not a big one because I don't like their balance sheet, but that's part of the business.
Although I definitely like Intrado. He is a straightforward person. Robin from Toronto, Robin. What's wrong with you, Jim? What's wrong with you, Robin? Jim, what are your thoughts on AXON? Thank you. Okay, I like Rick Smith. Anyone who has been watching the show for a couple of decades knows that I think Rick Smith is great.
I really think AXON has real competition. And they have a good product, but I have to say that when there is competition, it means pressure on gross margins. And if there is pressure on gross margin, the stock cannot be sold at a price that is 54 times earnings. So the answer is: I'm taking a break from AXON.
I am excited about CoreWeave. I was a little too negative. I think CoreWeave is exactly what Jensen wants. He considers them the best developers. I'm not going to go into that. Or at least that's what Intrado says. With artificial intelligence generating all this web traffic, I think these content delivery players are worth paying attention to.
I like Akamai. Let's remember this. Years after the IPO, the company fell sharply. It's F-E-R-M-I, but they've fully proven they deserve to be a public company. I'm looking at these stocks. Then Micron released its earnings report last night, and today the stock, well, didn't show much movement at first.
I'll explain why I supported this name during a period when things were really bad today. And also your numerous calls at a fast pace in today's edition of the " lightning round ". .
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