Wall Street’s Favorite Sleeper in the AI Infrastructure Boom?

Data streaming might sound like a back-office technology, the kind of thing only engineers care about, but it’s quickly becoming a foundational pillar of the digital world. And while most investors are busy chasing flashy AI stocks, one lesser-known name sits quietly at the heart of this infrastructure shift, Confluent (NASDAQ: CFLT).

Management just posted Q1 2025 earnings, beating expectations on both revenues and profits. But despite the solid quarter, shares plunged by nearly 20% after management issued slightly softer guidance, a move that might look like a red flag, but may also be a buying opportunity hiding in plain sight.

Key Points

• Confluent powers real-time data streaming, a critical backbone for AI and digital services like inventory tracking, fraud detection, and custom chatbots.

• Q1 2025 beat expectations, with strong customer growth and 117% net revenue retention, but a slight guidance cut sparked shares to plunge.

• The stock is down massively from its peak, now trading at a low 6.3x P/S, with analysts bullish on its long-term AI-driven potential.

The Infrastructure Play Most Investors Are Missing

If AI is the engine driving the next industrial revolution, data streaming is the fuel line. Every time a chatbot answers a question, a smart fridge checks inventory, or a rideshare app adjusts ETA predictions, data is flowing through pipelines that need to be fast, flexible, and reliable.

That’s where Confluent comes in. Built around the open-source Apache Kafka platform, Confluent has become the gold standard for real-time data processing. While competitors offer traditional databases or batch analytics, Confluent is optimized for constant, live data, the kind of infrastructure AI, fintech, and e-commerce firms can’t function without.

Over 80% of Fortune 100 companies use Kafka in some form. And Confluent, as the commercial leader of that ecosystem, is well-positioned to monetize the trend as those enterprises deepen their digital footprints.

Real-World Use Cases That Show Why It Matters

It’s easy to get lost in tech jargon, so here’s what Confluent actually enables:

• Retailers like Walmart use it to unify in-store and online data. When a shopper buys a product in a physical store, the inventory is updated across the system in real time — not hours later.

• Financial institutions use Confluent to detect fraud as it’s happening, not after damage has been done.

This kind of utility might not grab headlines like ChatGPT, but it’s mission-critical for companies operating at scale.

Solid Quarter With Growing Momentum

In Q1 2025, Confluent brought in slighly north of $260 million in subscription revenue, up over 25% year-over-year and ahead of management’s own forecast.

Net revenue retention rate hit 117%, signaling that existing customers are spending meaningfully more. That’s especially important in a tough macro environment, where cost-cutting is the norm.

Even more impressive: the company ended the quarter with over 1400 customers spending over $100,000 annually and 210 customers spending $1 million+ so why the negative stock reaction?

Confluent slightly trimmed its full-year revenue forecast to $1.11 billion, down from $1.12 billion. Management blamed global trade uncertainty. While small, the cut spooked the market.

Valuation Is Down, but Long-Term Potential Is Up

Confluent stock is down massively from its COVID-era highs, a correction that has brought its price-to-sales ratio down to almost 6x, close to the cheapest levels in its public history.

But today management believes its total addressable market is $100 billion, but that figure is likely to be conservative. As AI becomes more embedded in everyday business, the need for real-time data integration will likely surge.

Analyst Sentiment Is Quietly Bullish

Out of 34 analysts covering Confluent, 20 rate it a buy, and zero suggest selling. The average 12-month price target is nearly 45% higher from current levels.

That optimism is rooted not just in potential growth, but in the depth of Confluent’s moat. Switching data streaming platforms is no easy task, it’s deeply embedded in infrastructure and so it gives Confluent a sticky customer base and long-term pricing power.

A Rare Pick-and-Shovel Play in AI

While most AI stocks are either massively hyped or prohibitively expensive, Confluent sits in a sweet spot: misunderstood, undervalued, and essential to the tools businesses are building. As investors try to identify the next layer of winners in the AI economy, those providing the infrastructure, not just the algorithms may be the biggest beneficiaries.