Cloudflare Inc (NET, Financial) experienced a notable stock movement today as shares increased by 3.78% to $128.61. The surge in share price comes on the heels of a positive double-upgrade issued by Bank of America, which shifted its rating from underperform to buy. This change is largely attributed to the growing interest and potential within Cloudflare's AI-as-a-service segment.
Cloudflare, traditionally recognized for its cybersecurity solutions, is rapidly evolving its AI business, which has garnered significant interest from customers. This forward momentum is evidenced by the company's plan to meet or potentially exceed its annual revenue guidance, with an anticipated 30% annual growth rate over the next three years, as forecasted by analysts. Bank of America has subsequently raised its price target for Cloudflare's stock to $160 per share.
Despite not yet achieving GAAP profitability, Cloudflare reported a free cash flow of $166.5 million last year. However, its current trading valuation is steep, with the company trading at 269 times its trailing free cash flow and 194 times its projected 2025 free cash flow. The market capitalization stands at approximately $44.38 billion.
In terms of valuation, Cloudflare holds a GF Value of $107.73, which positions the stock as "Modestly Overvalued," according to GF Value. With a Price-to-Book ratio of 42.45, the figures underpin a speculative growth narrative that is further augmented by the company's strong Altman Z-score of 11.37, indicating robust financial health. Additionally, Cloudflare's gross margin of 77.32% demonstrates its ability to maintain profitability in its operations.
As Cloudflare continues to invest and expand its AI capabilities, its profile as a competitive player in the tech space is likely to strengthen, offering investors a potential growth trajectory that extends beyond traditional cybersecurity offerings.
