Cloudflare Plummets 3.5% Amid Sector Turmoil: What’s Driving the Selloff?

Summary
• Cloudflare (NET) trades at $189.57, down 3.53% from its $194.45 open
• Intraday swing spans $184.56 to $195.50, signaling sharp volatility
• DEF CON 33 research on ZTNA’s flaws and sector-wide AI infrastructure delays amplify pressure

Cloudflare’s 3.5% intraday plunge reflects broader sector jitters as zero-trust security models face scrutiny and AI-driven infrastructure projects stall. With the stock trading near its 52-week low of $74.88, investors are recalibrating expectations amid a wave of cybersecurity skepticism and data center bottlenecks.
Zero-Trust Backlash and AI Infrastructure Bottlenecks
The selloff in Cloudflare stems from DEF CON 33 research exposing critical flaws in zero-trust network access (ZTNA) technology, which the company has positioned as a cornerstone of modern cybersecurity. Researchers from AmberWolf demonstrated that ZTNA systems often default to 'always trust, never verify'—a direct contradiction to their core principles. Compounding this, sector-wide delays in AI infrastructure scaling, highlighted by Intel’s server market struggles and Stargate’s AI bottlenecks, have eroded confidence in cloud and network providers. These factors have triggered a risk-off trade in internet infrastructure stocks.

Software—Infrastructure Sector Suffers as Amazon Drags Down
The Software—Infrastructure sector is broadly underperforming, with Akamai Technologies (AKAM), Cloudflare’s closest peer, down 0.87% intraday. Both companies face headwinds from the DEF CON ZTNA critique and AI infrastructure delays. While Akamai’s decline is more muted, its technical indicators suggest weakening momentum, contrasting with Cloudflare’s sharp reversal from its 52-week high of $219. The sector’s vulnerability to cybersecurity skepticism and AI deployment lags is amplifying cross-stock volatility.

Bearish Options Play and ETF Positioning in a Volatile Sector
• MACD: 2.61 (Signal Line: 4.26, Histogram: -1.66) – bearish divergence
• RSI: 46.77 – neutral but trending lower
• Bollinger Bands: $188.96 (Lower Band) – critical support level
• 200D MA: $141.22 (far below current price) – long-term bearish

Cloudflare’s technicals suggest a short-term bearish bias, with the 52-week low ($74.88) and 200D MA ($141.22) forming a key target range. The 52W High of $219 and Bollinger Lower Band ($188.96) define immediate support/resistance. A 5% downside scenario to $180.10 could trigger significant put option activity.

Top Options Picks:
• NET20250829P185 (Put, $185 strike, 2025-08-29):
- IV: 55.02% (moderate)
- Leverage Ratio: 44.32% (high)
- Delta: -0.3498 (moderate sensitivity)
- Theta: -0.0162 (low time decay)
- Gamma: 0.0213 (high sensitivity to price swings)
- Turnover: 12,304 (liquid)
- Payoff at $180.10: $4.90 (max profit: $4.90)
This put option offers high leverage and liquidity, ideal for capitalizing on a 5% drop. The low theta ensures minimal time decay, while high gamma amplifies gains if the stock accelerates lower.

• NET20250829P190 (Put, $190 strike, 2025-08-29):
- IV: 72.70% (elevated)
- Leverage Ratio: 21.86% (moderate)
- Delta: -0.4618 (high sensitivity)
- Theta: -0.0394 (moderate time decay)
- Gamma: 0.0173 (moderate sensitivity)
- Turnover: 59,130 (highly liquid)
- Payoff at $180.10: $9.90 (max profit: $9.90)
This contract balances leverage and liquidity, with a higher strike price offering greater upside if the selloff intensifies. The elevated IV reflects market anticipation of volatility, making it a strategic play for aggressive bearish positioning.

Action Insight: Aggressive short-sellers should prioritize NET20250829P185 for liquidity and leverage, while NET20250829P190 suits those expecting a deeper pullback. Both contracts align with the sector’s bearish technicals and cybersecurity-driven sentiment.

Backtest Cloudflare Stock Performance
The backtest of a portfolio experiencing a 3% intraday plunge shows no strategy return, with the benchmark return being 83.38% over the same period. The strategy had a maximum drawdown of 83.38%, indicating significant risk management challenges. However, the Sharpe ratio and volatility were both 0, suggesting that while the strategy faced substantial drawdowns, the risk-adjusted returns were not impacted, and there was no additional volatility introduced.

Sector-Wide Weakness Demands Caution: Watch for $185 Breakdown
Cloudflare’s 3.5% drop underscores the sector’s vulnerability to cybersecurity skepticism and AI infrastructure delays. With the stock trading near its 200D MA and 52-week low, the immediate focus is on the $185–$188.96 support cluster. A breakdown below $185 would validate a bearish reversal, aligning with Akamai’s 0.87% decline as a sector benchmark. Investors should monitor DEF CON’s ZTNA fallout and Intel’s server market updates for catalysts. For now, short-term bearish options and ETFs tracking the sector’s underperformance offer tactical opportunities. Watch for $185 breakdown or regulatory reaction.