Cloudflare stock up on AI demand; valuation concerns linger

Cloudflare shares rose to $314, a 98% gain from the year’s low, after the company reported quarterly revenue of $696 million, up 36% year over year. The firm recorded a GAAP loss of $169 million for the quarter, driven largely by roughly $150 million in restructuring charges.

Gross profit for the quarter was $499 million, or 71.8% of revenue. On a non-GAAP basis, which excludes restructuring charges and stock-based compensation, net income was $107 million. Company executives noted that customers are adopting tools to verify users and to support agent-driven commerce on the web.

In the company’s statement, CEO Matthew Prince wrote: “As the web shifts to AI answer engines and agent-driven commerce, we are seeing a fundamental rewrite of the Internet for machine-to-machine traffic. Cloudflare sits at the center of this paradigm shift.”

Analysts expect continued revenue growth, with a consensus estimate projecting third-quarter revenue of about $738 million, roughly 31% growth, and fourth-quarter revenue near $798 million, about 30% growth. Annual revenue is projected above $2.8 billion this year and near $3.7 billion next year.

Several banks adjusted price targets after the results. Scotiabank raised its target to $390. Citigroup rated the shares outperform, while Morgan Stanley and Wells Fargo set targets around $370.

A simple Rule-of-40 calculation — combining revenue growth of roughly 33% with a net income margin near negative 8% — yields about 25%. The company’s strong top-line growth is accompanied by near-term losses and substantial restructuring costs.

Technical indicators show bullish patterns: the stock has formed an ascending channel, remains above the 50-day exponential moving average, and the Relative Strength Index has moved above the neutral 50 level. Technical analysts point to the prior high near $331 as immediate resistance; a sustained move above that level could shift attention toward $400.

Founded in 2009, Cloudflare operates a global content delivery and security network and provides web performance tools, DDoS protection and identity verification services. Investors have highlighted the company’s market share in content delivery networks and demand tied to AI applications that route more traffic between machines.