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U.S. cloud security and connectivity platform provider Cloudflare Inc. reported third-quarter results for the period ended September 30, showing revenue of $782.5 million, a 39% increase year-over-year and the fastest growth pace in nearly four years. Adjusted earnings per share came in at 38 cents, up from 27 cents in the same quarter last year and beating analyst expectations of 34 cents. Following the announcement, Cloudflare shares surged more than 14% in after-hours trading.

The company's annualized run rate has now crossed the $3 billion mark, while current remaining performance obligations rose 37% from a year earlier. Although high stock-based compensation of $174.1 million resulted in an unadjusted net loss of $34.1 million, the adjusted operating margin improved to 17.5% from 15.3%. Chief Executive Matthew Prince described the period as "Cloudflare's best quarter ever," noting that the business has found "an even higher gear" for its next phase of growth.

Based on these results, Cloudflare raised its full-year 2026 revenue guidance by approximately $97 million to a range of $2.963 billion to $2.964 billion, significantly above the previous Wall Street consensus of $2.87 billion. Fourth-quarter guidance also reflects optimism, with expected revenue of $845 million to $846 million and adjusted EPS of 43 cents. Additionally, the company appointed Christian Smith, formerly Chief Revenue Officer at Splunk, as President of Revenue to oversee global sales operations.

Australian collaboration software company Atlassian saw its shares fall more than 17% in after-hours trading following the release of its first-quarter fiscal 2027 results, despite beating analyst expectations across key financial metrics. The sharp decline reflects investor anxiety over a downward revision in future subscription annual recurring revenue (ARR) growth, which overshadowed strong short-term profitability and backlog figures.

For the quarter ended September 30, Atlassian reported adjusted earnings per share of $1.65, up from $1.04 in the same period last year and exceeding the consensus estimate of $1.43. Revenue rose 24% year-over-year to $1.772 billion, surpassing the expected $1.71 billion. This growth was primarily driven by its cloud segment, where revenue increased 31% to $1.302 billion. Conversely, the Data Center product line, which is scheduled for retirement in March 2029, saw growth slow to approximately 5%, with revenue at $391 million, as customers planning their migration to the cloud expanded less rapidly.

The pivotal factor triggering the sell-off was the guidance update. Atlassian now expects subscription ARR growth to decelerate to about 18.5% by the end of the fiscal year, down from the 22.5% rate just reported. Although remaining performance obligations surged 44% to $4.746 billion—supported by larger, multi-year enterprise deals—investors focused heavily on the immediate trajectory of subscription revenue growth. The company also posted net income of $91 million for the second consecutive quarter on an unadjusted basis, with free cash flow rising to $463 million and $581 million returned to shareholders through buybacks.

According to German tech outlet t3n, US midterm election results announced on November 4, 2026, led to a sharp divergence in tech stock performance. With Democrats winning governorships in key states like Texas and Ohio, investors feared that new data center constructions would face stronger regulatory headwinds, leading to significant sell-offs in AI infrastructure companies dependent on rapid capacity expansion.

Specifically, shares of Neocloud providers CoreWeave and Nebius fell by approximately 9% and 6%, respectively. Both companies rely heavily on debt financing to build data centers. In contrast, major tech giants such as Amazon, Microsoft, and Alphabet saw their shares rise by more than 6% or 3%. The market logic suggests that if data center build-out slows, these hyperscalers will face less pressure from massive capital expenditures, potentially allowing them to retain more profits.

Texas Governor-elect Gina Hinojosa has already stated she would block new data center permits until protective laws and community rights are established. Texas is slated to host about a quarter of the planned new US data center capacity through 2030. This political shift directly impacted market assessments of supply-side risks for AI compute.

Additionally, chipmakers Nvidia and AMD were sold off due to their tight linkage with infrastructure expansion. SpaceX shares dropped 3.8%, partly because founder Elon Musk supported Republicans during the campaign, raising concerns about potential political scrutiny for its satellite and rocket operations based in Texas.

The small-cap rally in 2026 has a key distinction from past episodes. As of November 4, the iShares Core S&P Small-Cap ETF (IJR) has gained 20% year-to-date, while the SPDR S&P 500 ETF (SPY) has advanced 13.3%. James Picerno emphasizes in The Capital Spectator that this means small-cap stocks are generating stronger positive returns, rather than merely achieving relative ranking gains by 'falling less than large caps' as was the case in 2022.

This distinction is not trivial. In 2022, when small-caps led for the year, the entire market was declining; small-caps simply fell less. If the same pattern were to continue this year, small-caps' relative advantage would vanish once the market rebounds. However, the current landscape is different: both small-caps and large-caps are rising, but small-caps are rising more. Picerno argues that this structure of 'both sides posting positive returns, with small-caps stronger' is more likely to persist than the structure of 'both sides posting negative returns, with small-caps losing less.'

Two mechanisms support this judgment. First, earnings growth momentum has inverted. FactSet estimates that the Magnificent Seven reported lower earnings growth than the other 493 companies in the S&P 500 in the third quarter, and expects this trend to continue into the fourth quarter—projecting earnings growth of 22.6% for the Magnificent Seven versus 30.8% for the rest of the index. Second, the market-cap-weighted structure is masking broader market strength. When several mega-cap technology stocks underperform, their outsized weights in the index drag down the overall performance of the S&P 500, causing the relative strength of equal-weight indices (RSP) and mid- and small-cap sectors to be underestimated.

Notably, the strength in small-caps this year is broad-based: small-cap ETFs for both value (IJS) and growth (IJT) styles are significantly outperforming the SPY. Picerno describes this characteristic as 'both broad-based and persistent,' noting that small-caps have maintained leadership over large-caps for most of 2026. Although a recent pullback raised concerns, IJR subsequently rebounded strongly while SPY drifted lower, widening the performance gap again.

However, Picerno himself remains cautious. He acknowledges that multiple breakout attempts by small-caps in recent years failed to gain lasting traction, making investor caution reasonable. His near-term validation condition is whether IJR can surpass its August high and set a new peak. If it does, the case that the small-cap revival is genuine will become considerably stronger; if not, it may repeat past failures.

The practical implication for readers is: if you had previously focused on the possibility of broadening market breadth based on predictions of inverted earnings growth, you can now confirm that this prediction has materialized in actual performance. But realization does not equal persistence—the August high breakout condition proposed by the author is the critical threshold for upgrading an 'observed fact' into an 'allocable signal.' Until then, this remains an argument supported by data but not yet passed final verification.