By Mackenzie Tatananni

Cloudflare stock received a rare double upgrade from BofA Securities analysts, who say the company stands to win out as customers seek the benefits of artificial intelligence without having to build their own infrastructure.

Analysts led by Madeline Brooks upgraded the stock to Buy from Underperform in a research note Tuesday. BofA Securities raised its target for the price to $160 from $60.

Shares rose 3.7% to $128.47 on Tuesday, leaving room for the stock to rise 25% before hitting the analysts' new price target. Cloudflare stock has climbed 19% this year and nearly 30% over the past 12 months.

In BofA's view, Cloudflare is positioned to become "the leader in AI-as-a-service," which the firm anticipates will be the consumption method of choice for businesses. AI-as-a-service is a cloud-based model that allows clients to integrate AI tools into their systems without investing in building the technology themselves.

That distribution model is already resonating with customers, BofA said. The firm's surveys indicate that AI is the leading product Cloudflare customers are looking to adopt over the next 12 months.

Cloudflare is increasingly the company of choice over hyperscalers like Amazon Web Services, Oracle, and Microsoft Azure due to its ease of use and scalability, the analysts said.

Another highlight is Cloudflare's strength in network security, particularly Secure Access Service Edge, a cloud architecture that consolidates networking and security services into a single platform.

While Cloudflare is already capturing market share from competitors in this area, momentum should only accelerate "as firewall refresh cycles near and enterprises look to modernize with software-based security solutions," the analysts wrote.

Given the company's recent momentum, BofA is increasingly confident in Cloudflare's ability to meet or exceed its forecast of revenue for the full year.

Not to say there aren't risks. The analysts noted that Cloudflare's 2028 target of $5 billion in revenue would require near perfection in marketing, particularly among enterprise customers, the analysts said.

Another hurdle is that AI could take longer to contribute significantly to revenue, given that the market for the technology is only beginning to grow and how AI companies are pricing their offerings.

Cloudflare continues to find ways to distinguish itself from peers. The company said last week that it would begin integrating its post-quantum cryptography service, which is meant to ward off cyberattacks from quantum computers, with its Zero Trust Network Access security solution.

Write to Mackenzie Tatananni at mackenzie.tatananni@barrons.com

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March 25, 2025 12:29 ET (16:29 GMT)

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