Centralized Web's Fragility: Cloudflare Outage Hits 20% Traffic, Spooking Investors

Cloudflare Inc. (NET) faced a significant global outage on November 18, 2025, triggered by an internal configuration error that disrupted services for major platforms including X, ChatGPT, Spotify, and Shopify. The company attributed the incident to an "unusual spike in traffic" that cascaded into widespread 500 errors across its network, impacting its dashboard, API, and core infrastructure. By late afternoon, Cloudflare reported partial recovery, though elevated error rates persisted as teams worked to stabilize systems. The outage, which affected nearly 20% of global web traffic, underscored the fragility of internet infrastructure reliant on centralized providers.

The incident occurred amid a strategic shift for Baillie Gifford, a major Cloudflare shareholder, which reduced its stake by 14.40% in late September 2025. The firm sold 3,676,391 shares at $214.59 each, trimming its holdings to 21,848,740 shares, or 3.52% of its portfolio. The move, valued at $781.5 million, reflects a broader reassessment of Cloudflare's valuation, with the stock trading at $210.6—nearly 67% above its GF Value of $126.99. Analysts noted the reduction aligns with Baillie Gifford's long-term strategy of prioritizing undervalued assets, though the outage may have accelerated concerns about the company's operational resilience.

Financial markets reacted swiftly to the outage, with Cloudflare shares falling 3.9% in premarket trading, extending a recent decline that has seen the stock drop 24% from its record high of $260 in October. The selloff followed a 4% drop the previous day, raising questions about investor confidence in the company's ability to manage systemic risks. The outage also disrupted crypto platforms, including Arbiscan and BitMEX, highlighting Cloudflare's critical role in securing decentralized finance (DeFi) ecosystems.

The incident reignited debates about the concentration of internet infrastructure among a handful of providers. Cloudflare, which processes 81 million HTTP requests per second, serves as a reverse proxy for nearly 20% of websites, optimizing performance and filtering malicious traffic. Critics argue that such centralization creates single points of failure, as seen in recent outages at Amazon Web Services and now Cloudflare. The company's statement emphasized that the outage was due to an internal misconfiguration, not a cyberattack, and pledged to release a detailed post-mortem analysis.

In response to the incident, Cloudflare announced an accelerated timeline for enhancing system resilience, including updates to its configuration management protocols. The company also temporarily disabled services in the UK during remediation efforts. Meanwhile, industry experts called for greater transparency and redundancy measures, such as multi-CDN architectures and open-source post-incident reviews, to mitigate future risks.

The outage's ripple effects extended beyond technical disruptions, influencing investor sentiment and regulatory scrutiny. With Cloudflare's market capitalization at $73.77 billion, even brief outages can trigger significant financial consequences, particularly for firms like Baillie Gifford that balance growth potential against valuation risks. As the company works to restore normal operations, its ability to address systemic vulnerabilities will be critical in maintaining trust with clients and shareholders alike.