Why Fastly's Stock is Suddenly on Fire

Fastly (NASD:FSLY), a smaller competitor to Akamai (NASD:AKAM) and Cloudflare (NYSE: NET) in the content delivery networking (CDN) market, is suddenly on fire. Let’s dive into why.

I met with some of Fastly’s management at the RSAC trade show in San Francisco two weeks ago. They were clearly emboldened by Fastly’s new opportunities in private edge connectivity and security for agentic AI. We’ll talk about these new opportunities in a bit.

The agentic AI opportunity offers the potential for future growth, but Fastly's core business of web application firewall (WAF) and networking security protection is also growing fast. Recent performance metrics in the past two quarters have driven investor enthusiasm. Fastly shares are up an astonishing 233% year-to-date and 578% in the last year. The rally was turbo-charged in February when the company’s earnings results showed an important inflection point toward profitability.

First Profit in February Earnings Report

Fastly's February 11, 2026, earnings report showed accelerating revenue growth and the company’s first-ever profitability. This was powered by surging security revenue and an emerging AI story. Q4 2025 revenue hit a record $172.6 million, growing 23% year over year, with record gross margin of 61.4% and record non-GAAP gross margin of 64%.

These numbers solidly beat management's own guidance range of $159 million-$163 million. This was a record high for Fastly and according to CFO Rich Wong, the largest sequential dollar revenue increase in company history. The record gross margins were driven by strong incremental revenue flow-through and a "stronger, balanced traffic mix" across delivery and security customers, said Wong. More importantly, the company raised its revenue forecast to $700 million-$720 million for fiscal year 2026.

The quarter also marked Fastly's fourth consecutive quarter of positive free cash flow. It also marked Fastly's first profitable fiscal year. For a company that has been burning cash for years, this profitability milestone was an important metric for investors.

The company also showed its booking business for future growth. Fastly's remaining performance obligations (RPO) hit a record $353.8 million, up 55% year-over-year, meaning contracted future revenue is growing faster than current revenue—a level of forward visibility most small-cap tech companies would envy. AI Is the new driver for CDNs.

The Agentic AI Opportunity

Fastly investors are finally getting what they want after years of patience.

More importantly, Fastly's showing momentum gains against its archrival, Cloudflare, which has had solid growth for years. Cloudflare shares had a huge year in 2025 and are up 120% in the past year, but its financial gains have moderated compared with Fastly’s recent surge. Fastly appears to be gaining ground on Cloudflare. And both companies—Fastly and Cloudflare—have grown faster than veteran CDN Akamai, whose share price gains and revenue growth are lagging behind these two insurgents.

One of the new drivers for CDNs, is, of course, agentic AI. As enterprises deploy AI workloads as well as agents across their infrastructure, they need help hosting and securing data and compute. With global networks of points of presence (PoPs) that have connectivity, security, and compute, CDNs are well positioned for this. This is why we have placed CDNs into a new bucket of companies that we are are calling "altscalers," which are alternative cloud providers that can provide edge compute services for AI.

The need for AI inference will boost this trend. Fastly management has repeatedly described AI as a tailwind in the past months. The company provides a Fastly AI Accelerator service for AI, which uses semantic caching for AI queries and LLM responses. On the February earnings call, CEO Kip Compton cited increased agentic traffic. He said this is driven by AI workloads running on the platform, including large dataset storage and edge inference, as well as new services such as AI bot mitigation.

Fastly has successfully repositioned its CDN infrastructure as a service that lets developers run machine learning models at the network edge, close to end users. It does this through a serverless runtime based on WebAssembly (Wasm). Fastly also uses this infrastructure to manage agentic AI at the edge. AI Accelerator software uses semantic caching to ensure that similar queries don’t result in multiple inference passes, wasting resources. The CDN had 532 Tb/s of global capacity as of December 2025, spanning over 80 locations across six continents.

Source: Fastly investor presentation.

Cloudflare also has an AI inference service, but it's more tailored toward developers. Its Workers AI service presents an API that triggers global inference workloads. Cloudflare supports over 50 models for inference in 200+ cities worldwide.

Another important area to watch is Fastly's fast growth of network-linked security services. Fastly’s security revenue reached $35.4 million in Q4, representing 32% year-over-year growth. The company sees security services as a high-value entry point for long-term customer relationships. Compton refers to a "security-led" sales strategy displacing “legacy” providers in Fortune 500 accounts (read: Akamai).

Futuriom Take: Fastly's repositioning as a multi-service global network for security and AI inference services is impressive, and its success has been validated by impressive sales growth, which should give investors new confidence that the company has a multi-year growth path.