Were Hedge Funds Right About Piling Into Cloudflare, Inc. (NET)?

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. Insider Monkey finished processing 887 13F filings submitted by hedge funds and prominent investors. These filings show these funds’ portfolio positions as of December 31st, 2020. In this article we are going to take a look at smart money sentiment towards Cloudflare, Inc. (NYSE:NET).

Is Cloudflare, Inc. (NYSE:NET) ready to rally soon? Investors who are in the know were becoming hopeful. The number of bullish hedge fund bets increased by 16 in recent months. Cloudflare, Inc. (NYSE:NET) was in 60 hedge funds’ portfolios at the end of the fourth quarter of 2020. The all time high for this statistic was previously 44. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that NET isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings).

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 197% since March 2017 and outperformed the S&P 500 ETFs by more than 124 percentage points (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.


At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best hydrogen fuel cell stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage. Now we’re going to take a peek at the key hedge fund action regarding Cloudflare, Inc. (NYSE:NET).

Do Hedge Funds Think NET Is A Good Stock To Buy Now?

At Q4’s end, a total of 60 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 36% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards NET over the last 22 quarters. With the smart money’s capital changing hands, there exists an “upper tier” of notable hedge fund managers who were increasing their stakes considerably (or already accumulated large positions).

Is NET A Good Stock To Buy?

More specifically, Alkeon Capital Management was the largest shareholder of Cloudflare, Inc. (NYSE:NET), with a stake worth $98 million reported as of the end of December. Trailing Alkeon Capital Management was Citadel Investment Group, which amassed a stake valued at $79 million. D E Shaw, Duquesne Capital, and Millennium Management were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position SW Investment Management allocated the biggest weight to Cloudflare, Inc. (NYSE:NET), around 19.3% of its 13F portfolio. Cota Capital is also relatively very bullish on the stock, earmarking 8.69 percent of its 13F equity portfolio to NET.

As aggregate interest increased, some big names were breaking ground themselves. Alkeon Capital Management, managed by Panayotis Takis Sparaggis, established the most outsized position in Cloudflare, Inc. (NYSE:NET). Alkeon Capital Management had $98 million invested in the company at the end of the quarter. Michael Pausic’s Foxhaven Asset Management also made a $57.4 million investment in the stock during the quarter. The other funds with brand new NET positions are Catherine D. Wood’s ARK Investment Management, Renaissance Technologies, and Alex Sacerdote’s Whale Rock Capital Management.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Cloudflare, Inc. (NYSE:NET) but similarly valued. These stocks are PT Telekomunikasi Indonesia (NYSE:TLK), Lennar Corporation (NYSE:LEN), Valero Energy Corporation (NYSE:VLO), KKR & Co Inc. (NYSE:KKR), ViacomCBS Inc. (NASDAQ:VIAC), Ameriprise Financial, Inc. (NYSE:AMP), and Old Dominion Freight Line (NASDAQ:ODFL). All of these stocks’ market caps are similar to NET’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
TLK 4 173765 -4
LEN 52 1529604 -8
VLO 38 409945 0
KKR 54 4136875 4
VIAC 44 919129 0
AMP 34 642947 5
ODFL 50 891260 3
Average 39.4 1243361 0

View table here if you experience formatting issues.

As you can see these stocks had an average of 39.4 hedge funds with bullish positions and the average amount invested in these stocks was $1243 million. That figure was $1182 million in NET’s case. KKR & Co Inc. (NYSE:KKR) is the most popular stock in this table. On the other hand PT Telekomunikasi Indonesia (NYSE:TLK) is the least popular one with only 4 bullish hedge fund positions. Compared to these stocks Cloudflare, Inc. (NYSE:NET) is more popular among hedge funds. Our overall hedge fund sentiment score for NET is 90. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Our calculations showed that top 10 most popular stocks among hedge funds returned 90.7% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 35 percentage points. These stocks gained 13.6% in 2021 through April 30th and still beat the market by 1.6 percentage points. Unfortunately NET wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on NET were disappointed as the stock returned 11.5% since the end of the fourth quarter (through 4/30) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market since 2019.

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