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On Tuesday, Truist Securities adjusted its outlook on Cloudflare Inc . (NYSE:NET) shares, raising the price target to $140 from $120, while maintaining a Buy rating. The stock, currently trading at $132.41, has shown remarkable momentum with a 57.73% gain over the past year. According to InvestingPro analysis, the company’s stock is currently trading near its 52-week high, with 16 key investment insights available for subscribers. The firm’s analysts pointed to the company’s upcoming fourth-quarter results, which are scheduled to be announced on Thursday, February 6th, after the market closes. They anticipate that Cloudflare’s continued traction with major clients and the success of its Workers AI platform will contribute to financial performance that surpasses Wall Street’s expectations for the quarter.
Analysts at Truist Securities are closely monitoring Cloudflare’s use of pool of funds deals, which may have short-term negative effects on the company’s revenue, billings, and free cash flow. Despite these potential headwinds, the firm’s projections for the full fiscal year 2025 are optimistic, forecasting revenue of $2.087 billion, which would represent a 25.6% year-over-year increase, and an operating margin of 13.4%.
The report also highlights Cloudflare’s progress in overcoming initial challenges associated with go-to-market (GTM) strategies. Last quarter, the company reported a rebound in sales productivity to levels last seen in 2022. InvestingPro data reveals impressive fundamentals, including a strong gross margin of 77.53% and robust revenue growth of 30.04% over the last twelve months. For deeper insights into Cloudflare’s financial health and growth metrics, subscribers can access the comprehensive Pro Research Report, available exclusively on InvestingPro. Cloudflare also added a record 219 large customers with annual recurring revenues (ARR) exceeding $100,000, marking a 6% year-over-year increase and capturing 35% of the Fortune 500 companies. The management has indicated plans to accelerate hiring of enterprise account executives as FY24 concludes.
Despite some deal slippage in the third quarter of 2024, management has noted that these deals remained in the pipeline, with many already closing. Truist Securities believes that enhanced sales representative productivity and the anticipated influx of new hires will lead to improved average contract values (ACV).
The firm also recognizes the growing momentum of Cloudflare’s Workers AI, especially after the company secured its first 7-figure deal for the platform. With a market capitalization of $45.05 billion and a healthy current ratio of 3.37, InvestingPro analysis suggests the company is well-positioned to support its AI initiatives, though currently trading at premium valuations relative to peers. This achievement underscores Cloudflare’s capacity to deliver high utilization rates for AI inference at the edge, which are significantly higher than those of self-managed deployments. Observing a shift in customer focus from AI training to inference, management is confident in increasing investments in GPU capacity to meet the demand in 2025.
In other recent news, Cloudflare Inc. reported a 28% year-over-year increase in Q3 revenue, reaching $430.1 million, along with a significant rise in its customer base, now standing at 3,265. The company anticipates continued growth in sales capacity and productivity, with Q4 2023 revenue projections indicating a 25% year-over-year increase. These are recent developments that investors should pay attention to.
Several analysts have revised their ratings and price targets for Cloudflare. JMP Securities increased the price target to $135, Citi raised their rating from Neutral to Buy and increased the price target to $145, and RBC Capital Markets analyst Matt Hedberg increased the price target to $123 while maintaining an Outperform rating. Goldman Sachs shifted its stance on Cloudflare, elevating the stock rating from Sell to Buy and substantially increasing the price target to $140. Baird also maintained its Outperform rating and increased the price target to $120.
These upgrades reflect the analysts’ increased confidence in Cloudflare’s growth trajectory and market positioning. The analysts highlighted several factors contributing to their optimistic view of Cloudflare’s stock, including the company’s strong top-line growth, its access to a large total addressable market, and the company’s strategic goal to become the essential infrastructure connecting organizations’ cloud environments.
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