Fastly Q4 2025: Stock Surged 64-88% on a Genuine Beat — But the AI Narrative Driving It Is Unquantified
Revenue +23%. First profitable year. Guidance $65-75M above street. Our five-lens committee found execution EXCEEDING expectations — but the agentic AI traffic thesis that drove the repricing is supported by E1 evidence only. Management declined to quantify it at the most favorable disclosure moment.
This is a summary of our full FSLY analysis
The Numbers That Triggered a 64-88% Move
+23% YoY, record quarter
+650bps YoY (non-GAAP)
$353.8M, strongest signal
One day. $5 to ~$16.
What Happened
Fastly reported Q4 2025 earnings on February 11, 2026, and the results were unambiguous. Revenue grew 23% year-over-year to $172.6M. Non-GAAP gross margin expanded 650 basis points to 64%. Free cash flow swung $81.5M positive. Net retention rate hit 110%, up 800 basis points. Remaining performance obligations grew 55% to $353.8M.
FY 2026 guidance of $700-720M came in $65-75M above street consensus of ~$645M — a 10-12% beat on the top line. The company also guided for ~18% Q1 2026 revenue growth and adjusted EPS of $0.23-$0.29, well above consensus.
The stock surged 64-88% in a single session, rising from ~$9 to ~$16. William Blair upgraded to Outperform, calling Fastly an "underappreciated AI play" and its WebAssembly architecture the "gold standard for real-time AI orchestration."
We ran five analytical lenses — Gravy Gauge, Moat Mapper, Myth Meter, Atomic Auditor, and Revenue Revealer — to separate what is real from what is narrative.
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Signal Scoreboard: 7 Signals Across 5 Lenses
Revenue beat by $44M. FCF swing $81.5M positive. NRR +800bps. All under new management with only 8 months tenure. The turnaround is real and multi-metric corroborated.
Revenue acceleration from 2% to 23% is genuine, but 76% remains usage-based with rising customer concentration. Only 4 quarters of improvement trajectory. RPO growth (+55%) is the strongest durability signal.
Multi-product switching costs create a narrow moat in the performance-sensitive enterprise segment. But Fastly is outscaled by Cloudflare (~3x revenue) and Akamai (~15x in security).
Operational turnaround is ALIGNED with narrative. AI/agentic traffic overlay is DIVERGING to DISCONNECTED (E1 evidence only). Estimated decomposition: 50-60% of stock move is fundamental, 20-30% is AI narrative.
At 3.4x FY2026 revenue, the stock requires sustained 15%+ growth, margin expansion to 15%+, AI narrative validation, and SBC compression. Individually plausible but collectively demanding.
Non-GAAP margins improving rapidly. GAAP per-customer approximately breakeven. No cohort data available for E3 verification.
Pure technology infrastructure with no regulatory dependency. Both Gravy Gauge and Revenue Revealer in full agreement.
The AI Narrative Gap: What 4 of 5 Lenses Flagged
The single most important finding from our committee: the agentic AI traffic thesis that helped drive the 64-88% stock surge is supported by E1 evidence only — management commentary without quantification.
Both Gravy Gauge and Myth Meter noted that management declined to quantify AI traffic contribution at the Q4 2025 earnings call — the most favorable disclosure moment possible. If the numbers were compelling, there would be incentive to share them. The silence is informative.
Moat Mapper added a structural observation: all CDN providers benefit from traffic growth. AI-generated requests increase demand across the entire category. Fastly has not yet demonstrated disproportionate capture of AI traffic relative to Cloudflare, Akamai, or hyperscaler CDNs.
What Is Real: The Turnaround Evidence
Revenue Acceleration: 2% to 23% in 4 Quarters
The acceleration trajectory is genuine and multi-metric corroborated. Revenue growth moved from low-single-digits to 23% in Q4 2025 under new management. This is not an accounting trick — RPO growth of 55% and NRR of 110% independently confirm real customer expansion.
Margin Expansion: 57.5% to 64% Gross Margin
Non-GAAP gross margin expanded 650bps in Q4 and 310bps for FY 2025. Free cash flow turned positive at $45.8M after years of cash burn. The first profitable year (non-GAAP) is a real milestone — though GAAP remains deeply negative at ~-$119M due to $117.3M in stock-based compensation.
Security Revenue: +32% and Growing Faster Than Core
Security revenue hit $35.4M in Q4, growing 32% vs. 19% for network services. The mix shift toward higher-margin, stickier security products is the most durable structural improvement in the business model.
What Remains Unresolved
Price Erosion: Structural or Cyclical?
Multiple lenses flagged the improvement in price erosion (from mid-teens to mid-single-digits) as the most significant new datapoint. But none could determine whether this reflects structural pricing power or cyclical demand tightness from AI traffic surges. This is the single highest-impact unknown for revenue durability.
Customer Concentration Rising, Not Falling
Top 10 customers grew to 34% of revenue (from 31-32%), growing 28-40% faster than the rest of the base. Streaming entertainment affiliated entities represent ~12% of revenue as an effective single-customer concentration point. The trend is toward more concentration, not less.
GAAP vs. Non-GAAP: A $141M Gap
SBC at 18.8% of revenue ($117.3M) creates a $141M gap between non-GAAP net income ($19.7M) and GAAP net loss (~-$119M). The "first profitable year" framing is accurate on non-GAAP but GAAP remains deeply negative. SBC levels are at or below peers (Cloudflare ~27%, CrowdStrike ~22%), but the gap is material for valuation.
Material Weakness Still Outstanding
FY 2024 10-K contained a material weakness in revenue process controls (Deloitte adverse opinion on ICFR). No restatement resulted, but remediation status is unknown pending the FY 2025 10-K, expected within 60 days.
Where Our Lenses Disagreed
The most productive tension emerged between Moat Mapper and Atomic Auditor. Moat Mapper classified competitive position as DEFENSIBLE but narrow — Fastly is outscaled by Cloudflare (~3x revenue) and Akamai (~15x in security). Yet Atomic Auditor classified operational execution as EXCEEDING.
The question this raises: can excellent near-term execution widen a structurally narrow moat, or is Fastly exploiting its competitive position temporarily? The security mix shift (now 21% of revenue, growing at 32%) is the strongest evidence that the moat may be widening. But it remains early.
A second tension: Myth Meter flagged NARRATIVE_REALITY_GAP as DIVERGING, yet the operational narrative (turnaround, margin expansion, FCF inflection) is clearly ALIGNED. The divergence concentrates entirely in the AI/agentic traffic overlay. Our committee estimated the stock move decomposes to roughly 50-60% fundamental rerating and 20-30% AI narrative premium.
What to Watch Next
| Trigger | Priority | Timeframe |
|---|---|---|
| Q1 2026 Revenue (~18% guided growth) | CRITICAL | Next quarter |
| FY 2025 10-K — Material weakness remediation | HIGH | Within 60 days |
| AI traffic quantification — Any management disclosure | HIGH | Ongoing |
| Top 10 customer concentration — Watch for breach above 36% | MEDIUM | Quarterly |
| NRR trajectory — Must sustain above 105% | MEDIUM | Quarterly |
| Insider buying — Any appearance would be a significant signal change | MEDIUM | Ongoing |
The insider activity pattern is notable: 19 selling transactions, 0 purchases over 3 months, totaling 661,474 shares sold. CTO Artur Bergman's selling appears systematic (regular 20K share blocks, likely a 10b5-1 plan). The selling occurred before the massive earnings beat, which adds complexity — but the absence of any insider buying, even at $5-9 levels, is a data point worth monitoring.
Bottom Line
Classification: CONDITIONAL TURNAROUND — Execution exceeding expectations, narrative outpacing evidence.
Fastly represents a genuine operational inflection point. The revenue acceleration, margin expansion, and free cash flow conversion are real and multi-metric corroborated. The new management team is executing well across measurable dimensions.
However, the market reaction (+64-88% in one day) appears to have priced in not just the turnaround but also an AI narrative that remains unquantified. The stock may have moved from significantly underpriced (pre-earnings consensus of $10.80 was stale) to demanding — requiring sustained 15%+ growth, continued margin expansion, and AI narrative validation.
The key conditionalities: revenue growth sustaining 14%+ through FY 2027, security mix shift continuing toward 25%+ of revenue, AI traffic contribution eventually quantified and material, customer concentration stabilizing below 36%, and the material weakness remediated in the FY 2025 10-K.
Whether those conditions are met will determine whether the post- earnings price reflects a belated recognition of value or a narrative-driven overshoot. Our committee found compelling evidence for both possibilities — which is precisely why this situation warrants monitoring.
Public Sources Used
This analysis was powered by the following publicly available documents:
- Annual Report (10-K) — FY 2024
- Quarterly Reports (10-Q) — Q1, Q2, Q3 2025
- Current Report (8-K) — Q4 2025 Earnings, February 11, 2026
- Proxy Statement (DEF 14A) — 2025
- Q4 2025 Earnings Call Transcript
- Q3 2025 Earnings Call Transcript
- Q2 2025 Earnings Call Transcript
- Q1 2025 Earnings Call Transcript