Jeff Kilburg Backs Fortinet and Cloudflare Despite Trades Above Analyst Targets

KKM Financial founder and CNBC contributor Jeff Kilburg is backing key technology stocks for the fourth quarter, selecting Fortinet and Cloudflare even though both trade above analyst price targets. Speaking on CNBC's The Exchange, Kilburg pitched the duo alongside Arista as a strategic way to capture booming artificial intelligence spending without buying hyperscale cloud giants directly. By his count, only Arista currently trades below Wall Street expectations, sitting roughly 20% under its target price.\n\n## AI Infrastructure Play Outside Hyperscalers\n\nKilburg emphasized that hyperscalers will not cut back on networking infrastructure. Data center networking vendor Arista has climbed about 58% this year while maintaining operating margins near 50%. Meanwhile, cybersecurity provider Fortinet is up 130% this year and trades at approximately 53 times projected earnings. Kilburg noted that adding Fortinet provides portfolio diversification alongside his existing holdings in CrowdStrike and Palo Alto Networks.\n\nCloudflare presents a more speculative profile, trading above a $350 target while still unprofitable. Kilburg estimated Cloudflare's forward price-to-earnings ratio near 300, though host Kelly Evans cited a 246 multiple. Evans compared Cloudflare's lofty valuation to the early years of Netflix, when high earnings multiples were similarly difficult for traditional analysts to justify. These aggressive multiples reflect broader enthusiasm for AI infrastructure stock growth.\n\n## Key Takeaways\n\n- Arista is up 58% this year, operates with margins near 50%, and trades 20% below analyst targets.\n- Fortinet has surged 130% year-to-date and trades at 53 times projected earnings.\n- Cloudflare trades above its $350 price target with a forward P/E estimated between 246 and 300 despite zero current profits.\n- FactSet projects Q3 S&P 500 earnings growth at 29%, compared to the 10-year average of 8%.\n- 10-year Treasury yields reached their highest point since 2002, matching iCapital's 5.3% forecast.\n\n## High Multiples Face 5.3% Yield Pressure\n\nTo justify buying stocks above price targets, Kilburg points to robust corporate profit expansion. FactSet projects third-quarter S&P 500 earnings growth of approximately 29%, marking the third consecutive quarter above 25% and standing far above the decade average of 8%. However, high valuation multiples face headwinds as the 10-year Treasury yield touched its highest level since 2002, reaching iCapital's raised yield forecast of 5.3%. Schwab analyst Kevin Gordon has also warned that a single capital spending miss by a mega-cap tech firm could disrupt broader market momentum.\n\n## Why It Matters\n\nKilburg's strategy highlights how institutional investors are shifting downstream in the AI supply chain to find tech yield beyond standard hyperscaler equities. However, carrying price-to-earnings multiples as high as 300 during a 5.3% benchmark yield environment leaves zero margin for earnings execution errors. If corporate capital expenditure slows or third-quarter earnings fail to match FactSet's 29% expansion forecast, highly valued security and networking vendors could experience sharp market repricing.