**Cloudflare **(NET 23.53%) fell over 18% ahead of the opening bell as investors see the company belatedly playing catch-up on AI, with management noting it’s “the biggest tailwind we’ve ever seen,” along with quarterly results showing a 4.67% fall in gross profit margins from the prior-year period.

“Cloudflare’s usage of AI has increased by more than 600% in the last three months alone”: 1,100 staff are being cut, with an email sent to staff saying management “have to be intentional in how we architect our company for the agentic AI era,” with the job cuts representing 20% of the current workforce.
News overshadows strong set of results: Despite the fall in gross margin, revenue rose by 34% versus the same period last year, with the outlook for full-year fiscal 2026 revenue and earnings raised. The stock is outperforming the S&P 500 by 285% since the November 2022 Stock Advisor recommendation by Team Hidden Gems.

SA Results From HUBS, MNST, RKLB, and NTDOY

HubSpot (HUBS 19.44%) slumped around 20% in pre-market trading as results provided some concern over future revenue growth rates and broader valuation concerns, despite profitability for the quarter improving year over year (YoY) for the recommendation by Team HG.
Monster Beverage (MNST +13.58%) popped over 6% in pre-market trading thanks to the Team RB rec reporting record quarterly sales, helped out by international growth and energy drink demand.
**Nintendo **(NTDOY 11.29%) disappointed investors as results forecasted a decline in sales for its flagship console, the Switch 2, as memory chip shortages bite at the Team Rule Breakers recommendation.
Rocket Lab (RKLB +34.08%) jumped over 6% ahead of the opening bell as results beat its own financial forecasts, with the Team Hidden Gems rec signing multiple new launch contracts. Fool contributing analyst Lou Whiteman said “there is nothing in the report to suggest Rocket Lab isn’t on its way toward growing into the company the market expects in the years to come.”

Record AI Capex Cycle Drains Tech Cash

New data from Visible Alpha shows the tech sector is facing the biggest cash strain in over a decade, as record-breaking AI capex spend weighs on free cash flow, even with higher spending in the pipeline.

Full-year free cash flow set to hit lowest level since 2014: The combined free cash flow of Amazon (AMZN +0.56%), Alphabet (GOOG +0.41%), Microsoft (MSFT 1.33%), and Meta (META 1.18%) is due to fall to around $4 billion in Q3, a stark drop from the $45 billion average for each quarter since the pandemic.
AI buildout seen as a once-in-a-lifetime opportunity: Amazon is expected to spend more cash than it generates this year, with other tech stocks in a similar position. Investors will need to weigh up whether such spending can result in higher returns down the road.

What to Watch on Friday

Enbridge (ENB 0.74%) reports before the market opens, aiming to build on the record results posted last quarter. The results should provide an update on major pending projects, including the Mainline Optimization Phase 1 and 2.
Brookfield Asset Management (BAM +1.99%) rose 1.5% ahead of the opening bell as results showed an 11% YoY jump in fee-related earnings, building on the record last quarter. The Dividend Investor rec boasts a three-year dividend growth rate of around 15%.

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