Cloud Headwinds Test Confluent's Recovery Case

Confluent CFLT got whacked, dropping over 30% after its Q2 results, and the headlines were led by Stifel pulling the rating to Hold from Buy and trimming its target to $21 from $30.

The note called out slowing net new workload activity, weak new customer adds, continued cloud usage optimization, and a big AI-native customer shifting off Confluent Cloud to a self-managed setup as the main reasons the growth story is hitting a rough patch.

That sharp move sparked pushback.

Guggenheim said the sell-off was too extreme, acknowledging churn and a dip in net revenue retention to 114% and an implied cloud exit rate of 18%, but still thinking a 4Q exit rate of 21% and subscription exit rate of 19% are doable, implying roughly 21% full-year subscription growth.

Needham kept its Buy call (target now $24 from $26), warning the same large AI customer is creating a low-single-digit cloud headwind in late 2025 even as stronger Confluent Platform expectations help offset it and shift cloud mix to 55% of subscription revenue exiting the year.

RBC also pushed back, holding Outperform with a $25 target (down from $28), saying the price drop was overdone even though optimizations will temper 2H consumption and point to a roughly 17.5% cloud exit growth rate in Q4.

The story is now a tug-of-war between near-term risk and underlying optionality. The market is pricing the pain, but if the AI customer's cadence normalizes and exit rates stabilize, the pullback could look like a setup.