CNBC contributor Jeff Kilburg is purchasing Fortinet and Cloudflare for the fourth quarter despite both stocks trading above analyst targets. According to reports from CNBC, only Arista sits roughly 20% below its target, making it his third pick in the trio. The KKM Financial founder pitched these companies as a way to profit from AI spending without owning hyperscalers, the cloud giants buying the chips.
Fortinet, a cybersecurity vendor, has delivered exceptional returns with 130% growth this year and trades at approximately 53 times projected earnings. As reported by CNBC, Kilburg already holds CrowdStrike and Palo Alto Networks, making Fortinet a diversification play rather than a new theme. Cloudflare, which routes and secures internet traffic, trades above a $350 target with a forward price-to-earnings ratio near 300, though host Kelly Evans cited a 246 multiple.
Kilburg's investment thesis is supported by strong market fundamentals, with FactSet projecting S&P 500 earnings up approximately 29% in the third quarter, marking a third straight reading above 25%. According to CNBC, this compares to an 8% average over the past decade. However, the investment strategy faces headwinds as the 10-year yield hit its highest level since 2002, matching iCapital's raised yield forecast of 5.3%.
The investment strategy depends on AI budgets maintaining strength, as noted by CNBC. Schwab's Kevin Gordon has warned that one mega-cap capital spending miss could disrupt the AI-driven market. With borrowing costs at multi-decade highs, third-quarter reports will reveal whether profit growth can continue supporting premium multiples across these technology stocks.
