Hook / Thesis
Fastly has stopped being the fallen growth name that lived in the discount bin. After a blowout Q4 print and strong fiscal-2026 guidance, the stock exploded from prior lows and is now clearing technical resistance on extremely heavy volume. The set-up favors continuation: the combination of renewed fundamental momentum (AI-driven edge demand), a smaller effective float after recent trading, and material short-interest creates a favorable path for a follow-through rally.
I'm recommending a tactical long position as a mid-term swing: the trade is designed to capture momentum and a re-rating while maintaining tight risk controls should momentum fail. Entry, stop and target are specific below; the plan is for a measured hold of up to 45 trading days unless company news or market structure forces a change.
What Fastly Does and Why the Market Should Care
Fastly is a real-time content delivery network and edge compute provider that sells edge delivery, edge security, and edge applications such as load balancing and image optimization. The core pitch today is simple: as AI workloads migrate from central clouds to latency-sensitive, distributed architectures, edge providers that can route, secure and compute near users become mission-critical infrastructure.
The market is starting to price Fastly not just as a CDN but as an AI-edge infrastructure play. That reclassification matters: throughput growth driven by agentic AI workloads drives higher gross margins and the possibility of platform expansion (security, load balancing, managed edge delivery) that carries better monetization than pure traffic resale.
Hard numbers that matter
| Metric | Value |
|---|---|
| Q4 Revenue | $172.6M (up 23% YoY) |
| Q4 Adjusted EPS | $0.12 (beat expectations) |
| 2026 Revenue Guidance | ~$710M (management projects ~14% growth) |
| Market Cap (snapshot) | $2.6B |
| Free Cash Flow (TTM / latest) | $34.1M |
| 52-week range | $4.65 - $19.27 |
Be explicit: last quarter Fastly reported $172.6M in revenue, +23% year-over-year, and positive adjusted EPS of $0.12. Management followed with guidance implying roughly 14% revenue growth to about $710M for fiscal 2026. Those are not tepid numbers for a company that was trading near single digits only months ago.
Technical and market structure tailwinds
The rally is backed by real volume. Two-week average volumes are very high and recent sessions showed outsized short-volume prints, consistent with short covering during the post-earnings move. Fastly’s shorter moving averages (10/20/50) sit materially below current price, confirming a strong breakout from the consolidation that formed during 2025. Momentum indicators show bullish MACD and an elevated RSI - this is not a stealth move; it’s visible and forceful.
Valuation framing
At a market cap near $2.6B and with guidance toward $710M of revenue in 2026, the company is trading at roughly 3.7x forward revenue on guidance (simple math: $2.6B / $0.71B). That’s materially cheaper than some pure-growth cloud peers when adjusted for the business model differences, and it leaves room for re-rating if Fastly sustains margin expansion and FCF growth. The trailing P/E is negative due to prior losses, but improving adjusted EPS and FCF generation (latest free cash flow ~ $34.1M) give the market a path to conventional multiples.
Put differently: the stock is no longer being priced purely as a turnaround mannequin. If management hits its revenue and margin trajectory, multiple expansion is plausible — especially as investors prize AI-adjacent infrastructure.
Catalysts to drive the next leg
- Ongoing AI/edge adoption - rising agentic AI traffic that requires low-latency edge compute could push usage and ARPU higher.
- Execution on 2026 guidance - quarterly beats on revenue and adjusted EPS will validate the re-rating thesis.
- Partnership announcements with large cloud/AI players - any deal that showcases Fastly as the preferred edge partner would materially change the TAM perception.
- Continued short covering - short interest and heavy recent short volume creates the risk of squeezes that amplify up moves.
Trade plan (actionable)
Trade direction: Long
- Entry price: $17.45
- Stop loss: $15.00
- Target price: $25.00
- Horizon: mid term (45 trading days) - Reason: this trade is designed to capture continued momentum off the post-earnings re-rating and to allow time for at least one incremental catalyst (quarterly update, partnership, or continued analyst/market re-rating) to materialize.
Position sizing: keep this to a tactical sleeve of your portfolio given elevated volatility - consider 2-4% of capital on the initial entry and scale only on clear confirmation above $19.25 on higher-than-normal volume. Tight stop at $15 protects against a failed breakout while allowing for normal intraday noise.
Why this trade can work
Fastly’s combination of improving fundamentals, clear market narrative (AI at the edge), meaningful liquidity and a measurable short-interest base creates asymmetric reward potential. The company’s recent quarterly improvements and mid-teens top-line growth guidance reduce execution uncertainty enough to justify a momentum-weighted swing approach. The entry is near the post-earnings pullback point and offers a favorable reward-to-risk to the $25 target.
Risks and counterarguments
- Overbought technicals and mean reversion: RSI is elevated. Momentum can reverse quickly, and a failure to follow through would likely lead to a fast pullback toward $12-$14. That’s why the trade uses a tight stop at $15.
- Competition and margin pressure: Cloudflare, Akamai and hyperscalers have similar offerings and deeper pockets. If Fastly cannot meaningfully expand higher-margin services or ARPU, revenue growth may not translate into sustainable profitability.
- Valuation sensitivity: While current multiples look reasonable on guidance, the stock is still priced for execution. Any meaningful slowdown versus the implied 14% guide would prompt re-rating back downward.
- Legal and governance overhang: Litigation inquiries and any management missteps could reintroduce headline risk and investor caution.
- Counterargument: A plausible bearish narrative is that the post-earnings move is a crowded momentum trade driven by short covering and headline flow into AI names; absent sustained beats and margin expansion, the rally could fade. That’s a valid scenario and the reason for strict stop discipline and time-boxing this as a mid-term swing.
What would change my mind
I will reassess and likely exit any lingering position if one of the following happens: (a) a quarterly result misses the conservative end of guidance and management pulls down forward guidance, (b) the stock decisively breaks below $15 on volume (stop), or (c) competitive disclosures show rapid customer migration away from Fastly to alternative edge providers. Conversely, a decisive close above $19.50 on expanding volume and incremental partnership announcements would make me add or extend duration toward a longer-term hold.
Conclusion
Fastly’s post-earnings rally is not random noise. The company delivered a measurable fundamental inflection, and the market is revaluing the business as AI-edge infrastructure. That combination, together with heavy liquidity and a short-interest backdrop, makes for a compelling mid-term long trade with defined risk controls. Keep position size tactical, follow the $15 stop, and give the trade up to 45 trading days to play out toward a $25 target. If the business fails to deliver on the guidance or the technicals break down, cut losses and move on.
Trade idea summary: Long FSLY at $17.45, stop $15.00, target $25.00, hold up to 45 trading days. Risk level: medium.