Why Cloudflare Stock Sank Today

Cloudflare (NYSE: NET) stock saw a significant sell-off in Wednesday's trading. The cybersecurity and web services company's share price closed out the daily session down 4.9% and had been off as much as 5.3% earlier in trading.

Cloudflare stock saw a valuation pullback today in conjunction with news that the Trump administration plans to implement new tariffs that would apply to foreign semiconductors. The company's share price also took a hit as a result of a new twist in a recently unfolding saga that has called the web services provider's anti-piracy protections into question.

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Cloudflare stock falls on new tariff outlook

President Trump announced yesterday that he'd be introducing a new 25% tariff on foreign-sourced semiconductors, automobiles, and pharmaceuticals. Chips are the only product category in that bundle that should have a meaningful impact on the tech company's business, but the tariffs could lead to higher costs for the tech specialist.

Trump's new tariffs could go into effect as early as April 2. He also said that the new import taxes could continue to rise significantly above the 25% level through the remainder of the year. Cloudflare relies on chips manufactured in Taiwan and other countries outside the U.S., so the business could wind up seeing rising expenses for key operational hardware.

Could piracy issues emerge as a new headwind for Cloudflare?

In addition to cybersecurity offerings, including protection against distributed denial-of-service (DDoS) attacks, Cloudflare provides edge computing and content-delivery network (CDN) technologies. These internet infrastructure tools help support massive web traffic for an expansive range of websites and applications. The company has generally taken a hands-off approach to the content that passes through its infrastructure, but that's causing some issues.

LaLiga, the top professional division of Spain's league soccer system, recently got IP addresses blocked through a court order following allegations that websites relying on Cloudflare's infrastructure were facilitating piracy and hosting illegal material. Now, Cloudflare is suing LaLiga over blocking the IPs, and investors are showing some concern that the issue could bring broader regulatory issues into the foreground.

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Keith Noonan has positions in Cloudflare. The Motley Fool has positions in and recommends Cloudflare. The Motley Fool has a disclosure policy.