Benefiting from unprecedented AI momentum and a restructuring that attracted more large enterprise clients, Cloudflare, Inc. (NET.US) reported stronger-than-expected sales, surpassing Wall Street's upwardly revised growth forecasts. The company's robust Q4 and full-year outlook further fueled investor optimism, driving its stock up nearly 14% by Friday's close to a record high.
The cloud services provider, which positions itself as a "Connectivity Cloud," projected Q4 sales of approximately $589 million, exceeding analysts' average estimate of $580.9 million and implying a 28% growth rate. Notably, Wall Street had already been raising expectations for Cloudflare's core metrics amid the AI boom before the latest results.
For Q3, Cloudflare's revenue reached $562 million, marking a 31% year-over-year increase and beating consensus estimates. The company also raised its adjusted EPS guidance for the fiscal year to a midpoint of $0.91, up from $0.85–$0.86, while maintaining a 28% sales growth outlook—well above Wall Street's ~20% projection.
During Friday's trading session, Cloudflare shares surged over 14% to an intraday record of $254.30, their largest single-day gain since May, before closing at $253.30 (+13.84%). Year-to-date, the stock has skyrocketed more than 120%, with analysts attributing the rally to its ambitious vision: transforming its distributed network into a scalable cloud platform capable of supporting AI model fine-tuning and inference workloads.
Though smaller than rivals like Akamai Technologies, Palo Alto Networks, and Fortinet, Cloudflare's user-friendly solutions have resonated with U.S. small and midsize businesses. Recent quarters saw accelerated growth from new enterprise clients and its Connectivity Cloud's generative AI capabilities.
CEO Matthew Prince dismissed concerns about an AI bubble impacting sales, noting that while 80% of AI tech firms use Cloudflare tools, such contributions remain a small portion of total revenue. He emphasized Cloudflare's role in shaping protocols and guardrails for the "AI-agent-driven internet," ensuring businesses of all sizes can participate.
**Why Cloudflare Thrives in the AI Era** Positioned as a "Connectivity Cloud," Cloudflare integrates network acceleration (CDN/Anycast), security (WAF, DDoS, Zero Trust), and developer tools (serverless Workers, storage, AI Gateway) into a global edge architecture. Unlike hyperscalers like Microsoft or Google that focus on centralized AI training clusters, Cloudflare emphasizes edge-native "inference + RAG + data security" with low-latency, pay-as-you-go solutions—positioning itself as the "network and edge OS" for the AI inference era.
Its distributed edge network hosts cost-effective AI inference (text/image/voice), with Nvidia GPU clusters deployed within milliseconds of users. This "Connectivity Cloud + Edge AI" approach complements hyperscalers while capitalizing on cross-cloud data flows and surging AI application demand.
Cloudflare's performance reinforces the bullish narrative for AI software stocks. As global tech investments expand beyond AI infrastructure to applications—boosting valuations for companies like Applovin, Trade Desk, Duolingo, and Palantir—the rise of killer generative AI tools and productivity-enhancing "AI agents" signals explosive growth ahead, driving recent capital inflows into software equities.