Jeff Kilburg Still Buying Fortinet, Cloudflare Above Analyst Targets

Jeff Kilburg, a CNBC contributor, has Fortinet and Cloudflare on his fourth-quarter buy list, even with both names above analyst price targets. As he tallies it, just Arista — the third choice — is about 20% under its target.

Kilburg, who founded KKM Financial, presented the three stocks on CNBC’s The Exchange as an AI-spending play. He admitted as well that Cloudflare is not profitable.

Why Pick Stocks Sitting Above Analyst Targets?

Kilburg describes the three holdings as a route into AI spending that bypasses the hyperscalers themselves, the cloud behemoths buying the chips.

Arista, by comparison, sells networking equipment for data centers and is roughly 58% higher on the year, according to Kilburg. He cites operating margins close to 50% and argues that hyperscalers won’t cut corners on networking.

Fortinet, a security software company, has climbed 130% this year and changes hands at roughly 53 times expected earnings, in Kilburg’s view. Kilburg currently owns CrowdStrike and Palo Alto Networks, making Fortinet a diversification play rather than a fresh angle.

Cloudflare, whose business is routing and securing internet traffic, is above the $350 price objective, Kilburg noted. He placed its forward P/E ratio around 300, while host Kelly Evans put the figure at 246.

Evans drew a parallel between that multiple and Netflix in its early years, when the stock’s earnings were also hard to defend.

Is 29% Profit Growth Enough to Offset a 5.3% Yield?

Profit growth is Kilburg’s counterweight. Third-quarter S&P 500 earnings are projected by FactSet to be up about 29%, marking a third consecutive quarter above 25%.

He compares that with a 10-year average of 8%.

Meanwhile, the 10-year yield reached its highest point since 2002, in line with iCapital’s upgraded forecast of 5.3%.

Still, the basket also relies on AI budgets holding up. Schwab’s Kevin Gordon cautioned that a single capital-spending miss by a mega-cap could rattle the AI-driven market.

With borrowing costs at highs not seen in decades, third-quarter reports may reveal whether profit growth can continue to support premium multiples.