Why Politics Tops Cybersecurity Demand for Cloudflare Stock

As a specialist in web infrastructure (particularly content delivery network services) and cybersecurity, it’s really no surprise why Cloudflare (NYSE:NET) stock has been a hot commodity this year.

Source: Shutterstock

Since the beginning of January, Cloudflare stock has skyrocketed 205%, giving stakeholders something to smile about amid the otherwise terrible novel coronavirus pandemic. While our nation gets prepared for another surge in new infections, on paper, the case for NET appears positive.

After all, the narrative for NET stock truly accelerated when the first few “pioneer” states decided to lock down their economy in order to stem the tide of the coronavirus. With companies forced to implement work-from-home measures, the need for enhanced internet communications (in terms of speed, reliability and security) increased dramatically.

Plus, it wasn’t all just for work-related functions. As you know, streaming services like Netflix (NASDAQ:NFLX) and Disney (NYSE:DIS) enjoyed a huge ramp up in subscriptions.

Here, Cloudflare stock experienced a double bonus. First, millions of people had extra time on their hands because the office commute was out of the picture. Second, without live sports and other events, traditional TV subscriptions became irrelevant and costly.

Admittedly, the return of sports – plus a gradual return to somewhat normal – has hurt the content delivery component of Cloudflare stock. In the current paradigm, rising infections might not help NET this time around. However, the cybersecurity business could really pick up the slack and then some.

The U.S. Cybersecurity and Infrastructure Security Agency released a warning that “there is an imminent and increased cybercrime threat to U.S. hospitals and health care providers.” Further, the agency went on to urge health care facilities to “take timely and reasonable precautions to protect their networks from these threats.”

For those with a nefarious agenda, the Covid-19 pandemic is rearing its ugly head at the perfect time. Due to rising hospitalizations, more patients will be on the health care grid, so to speak. And there are myriad incentives to keep patient medical data and other sensitive information secret. Hence, cyberattacks will likely accelerate.

At the same time, that also means increased demand for cybersecurity, which bodes well for Cloudflare stock. However, this immediate narrative hasn’t panned out well for shares. Here’s why.

Cloudflare Stock in Standby Mode

As you surely are aware, the presidential election is incredibly contentious, easily the most contentious in modern U.S. history. I’m not going to say all of history, of course, since we did have that little conflict called the Civil War. But we’re also not beyond Americans killing each other in this crisis because it has already happened.

Further, until we have a solution for Covid-19, either in the form of a vaccine or a holistically effective therapeutic, the political and ideological conflict will probably continue.

But because we don’t know who is going to win, investments that should have upside pathways like Cloudflare stock have been printing red ink. More critically, it’s not so much about who takes the White House – though important as it is – than how the people will respond that has NET and many other companies on edge.

Cloudflare stock vs. Covid-19 cases
Click to Enlarge
Source: Chart by Josh Enomoto

You can really see this on the charts. Notice that Cloudflare stock generally tracks new daily Covid-19 infections: as cases rise, so too does NET. This makes sense given the relevancy of web infrastructure services during this crisis.

But in recent weeks, this tracking between NET stock and coronavirus cases has gone antithetical, if you will. Currently, the relationship is inverse: as cases rise, Cloudflare shares decline. Did the bullish narrative suddenly go bust?

Not really. We just don’t know what the country will look like in the coming weeks ahead. Frankly, web infrastructure services don’t mean a whole lot when people are busy shooting each other.

A Genuine Concern of Instability

When Walmart (NYSE:WMT) made the temporary decision to pull firearms and ammunition from store shelves, I was shocked but not entirely surprised. With the prospect of violence gaining unfortunate credibility, Walmart may have wanted to protect itself from liability. And it might pull guns and ammo again, you just don’t know.

What I do know is that segments of both the Trump and Biden camp will not quietly accept the upcoming election results. Infamously, President Donald Trump in the first debate urged the Proud Boys, a far right extremist group, to “stand back and stand by.”

To be fair, those espousing leftist views have also contributed to the murderous violence and destruction that we’ve seen on the streets over the past several months. Really, this is a timebomb of tensions that could explode after Election Day.

In this context, I’m not surprised that Cloudflare stock looks pensive, despite some positive fundamental tailwinds. Over the intermediate term, NET is still a bullish story. However, you should probably wait out the nearer-term volatility so that we can get a clearer picture of the days ahead.

On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article.

A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.

Article printed from InvestorPlace Media, https://investorplace.com/2020/11/why-politics-top-cybersecurity-demand-for-cloudflare-net-stock/.

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