Shares of Fastly (FSLY +0.71%) have been on an absolute tear. The stock has surged 112% already in 2026, easily crushing the S&P 500's decline of about 0.5% over the same period.
This massive rally comes as the edge cloud network provider posts accelerating top-line growth and highlights its expanding enterprise customer base.
But just because a stock has incredible momentum doesn't automatically make it a good investment for the long haul.
Is Fastly stock a buy after its monster run, or has the valuation stretched too far ahead of the underlying business fundamentals?
Image source: Getty Images.
Accelerating revenue growth
Fastly's recent financial results have been marked by a significant inflection in growth, reflecting the company's transformation efforts and how artificial intelligence (AI) is becoming a tailwind for its business.
The edge-computing company's fourth-quarter revenue increased 23% year over year to $172.6 million. This represents a significant acceleration from 15% year-over-year growth in Q3 and 7% growth for the full year of 2024.
This momentum is being driven by strong engagement from its largest customers. Fastly's trailing-12-month net retention rate -- a metric that measures how much existing customers are increasing their spending -- rose to 110%, up from 106% in the prior quarter and 102% a year ago.
But the biggest driver for Fastly's business today may be AI.
"As the internet moves into the age of agentic AI, it's clear that the edge will play a pivotal role," said Fastly CEO Kip Compton in the company's fourth-quarter earnings call last month.
Compton continued:
Our infrastructure is designed to power this edge intelligence layer, optimizing authorized AI agents and blocking abuse. As one of the leading-edge cloud providers, Fastly is well positioned to capitalize on this transition. We see AI increasingly as a tailwind for our business with increasing agentic AI traffic, AI bot management opportunities, and AI workloads running on our platform.
Looking ahead
With this said, management's outlook still seemed to reflect some conservatism.
Fastly's guidance suggests the business will continue growing, albeit at a moderated pace.
For the full year 2026, management expects revenue of $700 million to $720 million. This represents roughly 14% year-over-year growth at the midpoint, signaling a notable deceleration from the 23% growth delivered in the fourth quarter but still much faster than 2024's growth rate.
But here's one factor that makes me think management was being conservative with its guidance.
The company's remaining performance obligations (RPO) -- a measure of contracted future revenue -- increased 55% year over year to $353.8 million in the fourth quarter. Even more, the current portion of these RPOs (the portion the company expects to recognize over the next 12 months) rose 37% year over year.
A profitability problem
Of course, revenue growth is only half of the equation.
Despite its expanding top line and recent milestone of achieving non-generally accepted accounting principles (non-GAAP) profitability and positive free cash flow in the fourth quarter, Fastly remains entirely unprofitable on a GAAP basis. The company reported a GAAP net loss of $15.5 million in Q4 -- though this was an improvement from a loss of $32.9 million in the year-ago period.
And here's another issue. Building and maintaining a global edge computing network is inherently capital-intensive. Fastly has to continually invest heavily in its network infrastructure to support its traffic volume -- especially in the era of AI. Indeed, the company expects its infrastructure capital expenditures in 2026 to be about 10% to 12% of revenue -- up from 5% in 2025.
NASDAQ: FSLY
Key Data Points
Is Fastly stock a buy?
After its recent run-up, Fastly trades at a price-to-sales ratio of about 5 as of this writing.
For a capital-intensive business where GAAP profits remain elusive, a valuation this high assumes the company will achieve exceptional margin expansion while its top-line growth rates remain high for years to come.
In other words, the stock leaves very little room for any missteps.
If Fastly can sustain its double-digit revenue growth while simultaneously keeping its heavy infrastructure costs in check, the company could eventually grow into this valuation. But with the stock having already doubled this year, the market has already started pricing in that optimistic scenario.
Of course, I could be wrong, and the stock's momentum could carry it even higher in the near term. But I'd rather wait for a more attractive entry point that appropriately prices in the very real execution risks of this capital-intensive business -- especially ahead of an inflection point in its capital expenditures.
