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On Monday, Baird analysts adjusted their stance on Cloudflare Inc . (NYSE: NYSE:NET), moving the stock rating from Outperform to Neutral, despite increasing the price target to $140 from $125. The revision follows a strong performance by Cloudflare, with the stock currently trading near its 52-week high of $142.41. Year-to-date, shares have already gained 28.53%, significantly outpacing the iShares Expanded Tech-Software Sector ETF (IGV), which saw gains of about 23%.
The analysts noted that Cloudflare remains the most expensive stock they cover on a relative basis, currently trading at roughly 17.7 times enterprise value to CY26E (Calendar Year 2026 Estimated) sales. This valuation surpasses the multiple from the prior year, which was about 17.5 times enterprise value to CY25E sales. According to InvestingPro analysis, the stock appears overvalued based on its Fair Value calculations, despite impressive gross profit margins of 77.53%.
The firm’s 2025 outlook had previously indicated that Cloudflare’s valuation might lead to near-term investor pushback. However, Baird had believed that the premium was justified due to Cloudflare’s strong positioning in artificial intelligence and its improved go-to-market execution.
Despite the positive aspects, Baird expressed caution. With Cloudflare’s stock price rising another roughly 29% year-to-date, compared to a 3% increase for the IGV, the analysts concluded that the relatively full valuations now present a more balanced risk-reward scenario. This reassessment led to the updated rating and price target, reflecting a more conservative outlook on the stock’s near-term growth potential.
In other recent news, Cloudflare Inc. has been the subject of numerous analyst adjustments. Truist Securities raised its Cloudflare stock target to $140, maintaining a Buy rating, while JMP Securities increased its target to $135. Citi analysts upgraded Cloudflare’s stock from Neutral to Buy, with a significant price target increase to $145. RBC Capital Markets analyst Matt Hedberg raised the price target to $123, maintaining an Outperform rating, and Goldman Sachs shifted its stance on Cloudflare, elevating the stock rating from Sell to Buy and substantially raising the price target to $140.
These upgrades reflect analysts’ growing confidence in Cloudflare’s growth trajectory and market positioning. The company’s robust financial performance, including a 28% year-over-year increase in Q3 revenue reaching $430.1 million and a significant rise in its customer base, now standing at 3,265, underpins this optimism. The company’s anticipated continued growth in sales capacity and productivity, with Q4 2023 revenue projections indicating a 25% year-over-year increase, are noteworthy recent developments.
The analysts’ confidence is further bolstered by Cloudflare’s strategic advances, such as the success of its Workers AI platform, its expansion into the network security sector, and its effective reorganization of its sales force. Despite potential short-term negative effects on revenue, billings, and free cash flow from Cloudflare’s use of pool of funds deals, the firm’s projections for the full fiscal year 2025 are optimistic, forecasting revenue of $2.087 billion, representing a 25.6% year-over-year increase.
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