Cloudflare Expands AI Tools: Will Revenue Growth Follow?
Cloudflare NET is implementing artificial intelligence (AI) initiatives across its portfolio and experiencing strong traction across AI Gateway, Workers AI and Durable Objects and Containers solutions. In the first quarter of fiscal 2025, NET reported a whopping year-over-year rise of 4,000% in its Workers AI inference requests and a 1,200% increase in AI Gateway requests.
Cloudflare is further augmenting its solutions by implementing AI across its infrastructure and security suite. The company has launched the Model Context Protocol server, which is embedded inside the Workers Platform to ease the deployment of AI agents to streamline workflows, handle transactions, and simplify business data queries. This value addition has the potential to increase upsells and customer acquisition.
Another recent addition to NET's portfolio is Cloudflare for AI, which is designed to enable businesses to adopt AI responsibly and at scale. The solution includes Data Loss Prevention for AI, which prevents sensitive data from leaking through prompts or model outputs; an AI Gateway, a fully-managed vector database for semantic search named Vectorize and Access for AI with Zero Trust controls.
Global giants like Asana, Atlassian, Block, PayPal, Sentry, and Stripe are already working with Cloudflare to create powerful AI experiences. After the implementation of AI capabilities in its portfolio, Cloudflare expects to win several large deals. Cloudflare already had 250,819 paying customers at the end of the first quarter of fiscal 2025, up 27% year over year. NET added 30 new customers during the quarter that contributed more than $100,000 in annual revenues, taking the count of such customers to 3,527 at the end of the quarter.
For 2025, Cloudflare anticipates its revenues between $2.09 billion and $2.094 billion. The Zacks Consensus Estimate for the same is pegged at $2.09 billion, indicating a year-over-year rise of 25.38%.
How Competitors Fare Against Cloudflare
Cloudflare faces competition in multiple dimensions from Amazon AMZN. Amazon Web Services' ('AWS') Lambda, Bedrock, SageMaker, and API Gateway make it a direct competitor of Cloudflare in the serverless computing and AI inference space. AWS also offers vector databases and cybersecurity services like Cloudflare.
Alphabet 's GOOGL Vertex AI, Cloud Run, Firebase, and AI/ML APIs, Google Cloud Platform offers solutions for AI development, model inference, and low-latency app deployment, making Alphabet a strong contender for Cloudflare.
Cloudflare's AI initiatives have brought it head-on with cloud hyperscalers like Alphabet and Amazon in infrastructure and inference hosting, with enterprises switching to Cloudflare platform for its better performance, lower development cost and modernized platform. These factors will help NET boost its revenues.
Cloudflare's Price Performance, Valuation and Estimates
Shares of NET have surged 73.2% year to date compared with the Zacks Internet - Software industry's growth of 15.4%.
From a valuation standpoint, NET trades at a forward price-to-sales ratio of 27.42X, higher than the industry's average of 5.8X.
The Zacks Consensus Estimate for NET's 2025 and 2026 earnings implies year-over-year growth of 5.33% and 31.64%, respectively. The estimates for 2025 and 2026 earnings have been revised downward in the past 60 days and 30 days, respectively.
NET currently carries a Zacks Rank #3 (Hold). You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here
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