Cloudflare Inc

Cloudflare is an emerging network-as-a-service leader that has continued to navigate complex governance and compensation challenges as it scales its global cloud platform. The firm has maintained an active dialogue with Cloudflare’s leadership to monitor its human capital management and align executive incentives with long-term shareholder interests. Our engagements have focused on ensuring the company’s engineering-led culture can successfully integrate an effective enterprise sales force while maintaining a sustainable compensation framework.

Cloudflare is mentioned as an optionality position within the portfolio, fitting into a consumption or take-rate based pricing model. The manager notes that it, along with Snowflake, has seen dramatic growth due to the accelerated pace and volume of software being written by its customers. However, there is no explicit bullish or bearish argument made regarding Cloudflare's future performance.

Cloudflare continues to demonstrate strong performance and growth potential, driven by its robust position in the network security solutions market. The company is well-positioned to benefit from the increasing demand for AI infrastructure and security solutions, which are critical as enterprises accelerate their digital transformation efforts. With a comprehensive portfolio and a strong moat, Cloudflare is expected to capture significant market share in the evolving landscape of cybersecurity and cloud services.

We added a new holding in Cloudflare Inc (NYSE: NET) in September, bringing our total holdings to 27 positions. Our investment in Cloudflare reflects our belief in its strong growth potential and the company's ability to deliver durable and outstanding net returns. We are excited about the opportunities that lie ahead for Cloudflare as it continues to shape the digital landscape and drive innovation in the cloud services sector.

The shares of Cloudflare had a maximum drawdown of 45% during the first half, while we believe the intrinsic value of the business has only grown. Cloudflare is rapidly becoming a more important vendor for its customers with $1 million and $5 million customers growing 48% and 54% year-over-year, respectively, while the company also booked a milestone contract of over $130 million during the quarter. Cloudflare Workers AI inference requests were up 'nearly 4,000% year-on-year.' While the stock is expensive by any measure, we continue to believe that Cloudflare is an important company whose fundamentals continue to get stronger.

Cloudflare has been a top contributor to the Global Growth portfolio, reflecting its strong performance and growth potential. The company is well-positioned within the rapidly evolving landscape of AI and IT services, benefiting from increasing demand for its solutions. As businesses continue to adopt AI technologies, Cloudflare's capabilities in providing secure and efficient internet services are expected to drive significant growth. The manager believes that Cloudflare's competitive advantages and market position will enable it to capitalize on these trends effectively.

Cloudflare has been a strong contributor to the portfolio, reflecting robust demand in the information technology sector. The company is positioned well within the market, benefiting from the ongoing growth in data centers and cloud services. The NZS team views Cloudflare as a resilient investment, contributing positively to the overall performance of the strategy amidst market volatility. The addition to this position indicates confidence in its future growth potential and alignment with the NZS investment framework.

Cloudflare provides software and services to keep internet traffic safe and secure. Investors have responded positively to the company’s continued business growth, driven by the adoption of newer, software-based tools that help enterprises secure their networks more effectively than outdated legacy hardware solutions. In addition, we believe Cloudflare’s emerging AI capabilities show strong potential and could serve as a meaningful growth catalyst heading into 2026.

Cloudflare is mentioned in the context of the primary market for convertibles, specifically regarding its issuance of a $2 billion 0% 5-year bond. However, there is no directional argument made about the company's future performance or valuation.

We added to an existing holding in Cloudflare. The emergence of these new thinking artificial intelligence models is moving the industry from training to placing much more emphasis on inference. Cloudflare is very well positioned here because a lot of that inferencing is done at the edge. Cloudflare has a lot of that edge infrastructure already in place, which gives it a significant advantage as more engineers look to build on top of that infrastructure. Being closer to individuals fundamentally means that responses to queries will be quicker, which is crucial as people are increasingly impatient for fast responses.