What Makes Cloudflare (NET) a Compelling Long-Term Compounder?

Conestoga Capital Advisors, an asset management company, released its second-quarter 2025 investor letter. A copy of the letter can be downloaded here. The second quarter began with a historically poor start but gained momentum later as tariff fears subsided and market volatility dropped precipitously. Conestoga Mid Cap Composite returned 3.46% net-of-fees in the quarter, trailing the Russell Mid Cap Growth Index’s 18.20% return. After a strong first quarter in 2025, investor enthusiasm shifted towards high-beta and AI stocks following the "Liberation Day" announcements, creating a narrow leadership group that posed challenges for the Mid Cap Strategy in the second quarter. Please review the fund's top 5 holdings to gain insight into their key selections for 2025.

In its second quarter 2025 investor letter, Conestoga Capital Advisors highlighted stocks such as Cloudflare, Inc. (NYSE:NET). Cloudflare, Inc. (NYSE:NET) is a cloud services provider that delivers a range of services to businesses worldwide. The one-month return of Cloudflare, Inc. (NYSE:NET) was 1.32%, and its shares gained 156.46% of their value over the last 52 weeks. On July 25, 2025, Cloudflare, Inc. (NYSE:NET) stock closed at $198.42 per share, with a market capitalization of $68.774 billion.

Conestoga Capital Advisors stated the following regarding Cloudflare, Inc. (NYSE:NET) in its second quarter 2025 investor letter:

"Based in San Francisco, Cloudflare, Inc. (NYSE:NET) secures over 20% of global internet traffic. Its unified platform, running identical software across 330+ cities, creates a powerful structural edge in cost, scalability, and speed to market. We initiated a position in 2Q as this architecture fuels rapid expansion from its networking core into a large and growing $200B+ addressable market spanning cybersecurity, developer tools, and AI workloads. With new enterprise leadership accelerating platform adoption, we believe the company has visibility into durable 25-30% revenue growth and expanding margins, positioning it as a compelling long-term compounder."

Cloudflare, Inc. (NYSE:NET) is not on our list of 30 Most Popular Stocks Among Hedge Funds. As per our database, 65 hedge fund portfolios held Cloudflare, Inc. (NYSE:NET) at the end of the first quarter, which was 55 in the previous quarter. Cloudflare, Inc.’s (NYSE:NET) revenue for the first quarter increased 27% year-over-year to $479.1 million. While we acknowledge the potential of Cloudflare, Inc. (NYSE:NET) as an investment, we believe certain AI stocks offer greater upside potential and carry less downside risk. If you're looking for an extremely undervalued AI stock that also stands to benefit significantly from Trump-era tariffs and the onshoring trend, see our free report on the best short-term AI stock.

In another article, we covered Cloudflare, Inc. (NYSE:NET) and shared the list of best multibagger stocks to buy according to hedge funds. In addition, please check out our hedge fund investor letters Q2 2025 page for more investor letters from hedge funds and other leading investors.

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Disclosure: None. This article is originally published at Insider Monkey.