Jeff Kilburg Backs 2 Tech Picks Even When They Trade Above Analyst Targets

CNBC contributor Jeff Kilburg is buying Fortinet and Cloudflare for the fourth quarter, though both trade above analyst targets. By his count, only Arista, his third pick, sits roughly 20% below its target.

The KKM Financial founder pitched the trio on CNBC’s The Exchange as a way to profit from AI spending. He also conceded Cloudflare does not make money.

Why Buy Stocks Trading Above Analyst Targets?

Kilburg calls the trio a way to play AI spending without owning hyperscalers, the cloud giants buying the chips.

By contrast, Arista, which sells data center networking gear, is up about 58% this year, he said. He points to operating margins near 50% and says hyperscalers will not skimp on networking.

Fortinet, a cybersecurity vendor, is up 130% this year and trades at about 53 times projected earnings, he said. He already holds CrowdStrike and Palo Alto Networks, so Fortinet adds diversification rather than a new theme.

Cloudflare, which routes and secures internet traffic, trades above a $350 target, Kilburg said. He put its forward price-to-earnings (P/E) ratio near 300. However, host Kelly Evans cited 246.

Evans likened the multiple to Netflix’s early years, when that stock’s earnings also looked hard to defend.

Can 29% Earnings Growth Outweigh a 5.3% Yield?

Kilburg’s offset is profit growth. FactSet projects S&P 500 earnings up about 29% in the third quarter, a third straight reading above 25%.

He sets that against an 8% average over the past decade.

Meanwhile, the 10-year yield hit its highest level since 2002, and matches iCapital’s raised yield forecast of 5.3%.

Still, the basket also depends on AI budgets holding up. 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 may show whether profit growth can keep carrying premium multiples.