Bank of America is holding back on Fastly despite a 98% rally, citing concerns over the company's revenue mix and competitive pressures in cybersecurity. Investors face a test as Fastly's earnings approach and expectations run high
Investors chasing the year's hottest cybersecurity stocks have watched Fastly surge nearly 100% in 2026, but Bank of America is refusing to join the crowd. In its latest sector preview, BofA Global Research maintained a cautious stance on Fastly, assigning the edge cloud provider its lowest rating-Underperform-and a $20 price target, even as the stock's rally has outpaced most of its peers.
BofA's skepticism centers on Fastly's revenue composition. While the company has promoted its shift toward security and compute services, BofA's analysis shows that Network Services-Fastly's original content delivery business-still accounted for about 73% of first-quarter revenue. Security products contributed roughly 22%, and Compute remained below 5%. This breakdown suggests that the company's diversification narrative is not yet reflected in its financials, raising questions about whether the stock's valuation is justified by actual business transformation.
Security remains a crowded and competitive field, with limited pricing power for products like bot management and API discovery. BofA's analysts argue that until Fastly's newer segments become large enough to offset its dependence on traffic-sensitive delivery services, the company's growth story remains vulnerable to shifts in its core market. With Fastly set to report second-quarter results on August 5, the stakes are high for a stock that has been priced for a transformation it has yet to fully deliver.
Contrasting Calls on Akamai and Cloudflare
While Fastly faces skepticism, BofA is more optimistic about Akamai and Cloudflare. The bank reiterated Buy ratings for both, setting price objectives of $175 for Akamai and $330 for Cloudflare. Akamai's bullish case is anchored by a $1.8 billion, seven-year cloud infrastructure contract with Anthropic, a leading AI model provider. This deal, disclosed in Akamai's first-quarter earnings, triggered a 27% single-day jump in the company's shares-the largest in its history. BofA expects this contract to drive durable, high-margin revenue, even as near-term gross margins may dip to 70.9% due to upfront data center investments.
Akamai has also completed its acquisition of LayerX, an Israeli browser-security startup, for approximately $205 million. The deal is expected to modestly dilute 2026 earnings but opens new cross-selling opportunities within Akamai's security customer base. For Cloudflare, BofA's confidence is tempered by valuation concerns. The company posted 34% year-over-year revenue growth to $639.8 million in the first quarter and now counts over 4,400 customers paying more than $100,000 annually. Yet, with shares trading at about 27 times forward sales, BofA warns that any slowdown below 30% growth could weigh more heavily on the stock than margin pressures.
Market Momentum vs. Analyst Conviction
The divergence in BofA's ratings highlights a broader tension in the cybersecurity and cloud infrastructure sector: stock prices are often running ahead of analyst conviction. Akamai and Cloudflare have delivered concrete contracts and customer data to support their growth stories, while Fastly's rally is built on expectations that its business mix will shift-an outcome that has not yet materialized in the numbers. This dynamic is not unique to Fastly. As Morgan Stanley's recent positioning on Charles Schwab shows, Wall Street is increasingly focused on whether business fundamentals can keep pace with investor enthusiasm.
For Fastly, the upcoming earnings report will serve as a key test of whether its transformation story can translate into tangible results. Investors betting on continued momentum should be aware that analyst skepticism remains high, and that the company's revenue mix may need to shift more decisively before broader confidence follows.
According to Fastly's most recent quarterly filing, the company reported $133.5 million in total revenue for the first quarter of 2026, up 19% from the prior year. Security revenue grew at a faster pace than the legacy delivery business, but the latter still dominates the company's top line. Fastly's market capitalization has nearly doubled since the start of the year, reflecting heightened expectations for a successful pivot into higher-growth, higher-margin segments.
Understanding Revenue Mix and Valuation Risk
Revenue mix is a critical factor in how investors and analysts value technology companies, especially those in transition. A company heavily reliant on a single business line-such as content delivery-may face greater risk if that segment comes under pricing or competitive pressure. Diversification into security and compute services can offer more stable, recurring revenue, but only if those segments reach sufficient scale. When a stock's price reflects a transformation that is not yet visible in the financials, the risk of disappointment rises. For investors, tracking the pace and scale of revenue diversification is essential to understanding both the upside and the potential pitfalls of high-growth technology stocks.
