Software stocks have been among the best performers of 2020, juiced by revenue growth related to stay-at-home measures and lofty expectations for future gains. But a blowup at cloud provider Fastly Inc. served as a stark reminder of how some of those hopes may prove misguided.
Fastly plummeted as much as 31%, its worst session on record, after a revenue warning for the third quarter rebutted a growth narrative that had made the company the fifth-best performer in the Russell 1000 Index this year. While some of the weakness was related to geopolitical tensions and its exposure to TikTok owner ByteDance, Fastly also warned of reduced revenue from other customers.
Fastly’s slowdown highlights the precariousness of lofty software valuations. Massive share plunges are the price paid when these businesses fall short of perfection. Software stocks have been among the year’s leaders, with an S&P index of software makers up more