Stock Market Today, May 7: Fastly Shares Plunge After Record Q1 Results Fail to Ease Growth Concerns

Fastly fell 38.23% to $19.50 after record Q1 results and a raised 2026 outlook failed to offset investor concern that core Network Services growth is slowing to 11%. Revenue rose 20% in Q1, adjusted EPS beat estimates, and Security and Compute grew 67% and 47%, but the stock sold off amid valuation pressure at 71x forward earnings and capex expected to more than double in 2026. Volume surged to 47.1 million shares, about 208% above average.

Analysis

The key takeaway is that the market is no longer pricing FSLY as a simple high-beta growth rerate; it is starting to discount a business-model transition with meaningful reinvestment intensity. When a company’s higher-growth adjacent segments are still only a minority of revenue, but the main engine is decelerating and capex is set to inflect sharply, the market tends to compress the multiple before fundamentals fully roll over. That makes this less about one quarter and more about whether management can prove that Security/Compute can sustain mix shift fast enough to offset margin dilution and rising infrastructure intensity.

Second-order, the biggest relative beneficiary may be NET, not AKAM. If investors decide that edge/security/compute are the real durable growth pools, capital should keep rotating toward the platform with the strongest developer pull and the clearest operating leverage, while AKAM remains trapped in a slower, more ex-cash-flow framing. FSLY’s washout also raises the bar for smaller infra peers: any company with accelerating revenue but rising capex will now be scrutinized for “quality of growth,” not just growth rate.

The move looks partially overdone tactically because the revenue mix is improving and the market is extrapolating a straight-line slowdown from one segment into the whole franchise. But the longer-term risk is that the market is right to focus on economics rather than optics: if capex rises faster than revenue, FCF durability and valuation support can deteriorate even while top-line growth stays respectable. Near term, the stock is likely to trade on positioning and analyst downgrades rather than fundamentals, which keeps it vulnerable for days to weeks; the real test is whether the next two quarters show Security/Compute scaling without a step-up in cash burn.

The contrarian setup is that this may become a better short on bounces than an immediate momentum short, because the selloff already reprices some of the deceleration risk. If management can maintain double-digit core growth while proving that the newer segments are becoming a larger share of bookings, the stock could stabilize quickly. But until the market sees evidence that incremental revenue is not being bought with materially higher capex, any rally should be treated as suspect.

Key Decisions for Investors

• Avoid initiating fresh longs in FSLY for now; wait 1-2 quarters for proof that Security/Compute can offset core-network deceleration without a capex-driven FCF hit. Risk/reward is poor until the market stops treating the business as a 'growth at any cost' story.
• Use strength to short FSLY into retracements over the next 2-6 weeks, targeting any rebound that restores a premium multiple before the next earnings print. Stop if management shows sequential reacceleration in core services or if the stock reclaims pre-earnings levels on rising volume.
• Long NET / short FSLY as a relative-value pair for 1-3 months: own the platform with clearer category leadership and better operating leverage while fading the name where growth quality is becoming more expensive to sustain. The pair benefits if investors continue to re-rate edge/security winners and punish capex-heavy growth.
• If you want optionality, consider buying FSLY puts or put spreads expiring after the next quarter. The catalyst is a potential second leg down if guidance or capex commentary confirms that margin expansion is being deferred by infrastructure spend.