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On Tuesday, Goldman Sachs reiterated a Buy rating for Cloudflare Inc . (NYSE:NET) with a price target of $161.00, well above the current trading price of $127.50. With a market capitalization of $43.77 billion, InvestingPro analysis suggests the stock is currently trading above its Fair Value. The focus of the discussion by the research firm centered on the size and growth rate of the opportunity in AI inference for Cloudflare. Goldman Sachs previously upgraded Cloudflare on January 2, estimating that the company’s Act III products—which include developer tools and compute and storage capabilities for both traditional and AI-enabled compute—would reach $80 million in Annual Recurring Revenue (ARR) in 2024. Supporting this growth trajectory, Cloudflare has demonstrated strong revenue growth of 28.76% in the last twelve months, with impressive gross profit margins of 77.32%. They also presented a scenario where ARR could potentially grow to $1.3 billion by 2030, which would represent a Compound Annual Growth Rate (CAGR) of 60%.
This estimate was given as an initial figure due to uncertainties in determining the Total (EPA:TTEF) Addressable Market (TAM) for AI inference and Cloudflare’s share within it. However, Cloudflare’s fourth quarter earnings call on January 25 provided an indicator that supports near-term growth, with the company guiding capital expenditures to be between 12-13% of revenue, reflecting an approximate 40% year-over-year increase. This increase in capital expenditure is attributed to the company’s investment in its GPU rollout to meet the demand for AI inference.
Further insights were shared during Cloudflare’s Analyst Day on March 12, where it was disclosed that the annual contract value (ACV) for Act III was up 76% year-over-year, showing acceleration in growth. Cloudflare also announced plans to double its global compute capacity this year. Although using a capex to revenue ratio as a forecasting tool has its limitations, the firm’s broader field work suggests Cloudflare could be on track to double Act III ARR in 2025.
Goldman Sachs believes that Cloudflare is still in the early stages of its product cycle. The firm’s technical differentiators, such as more efficient routing and a serverless platform, are expected to enable Cloudflare to capture a significant share of this emerging profit pool, potentially delivering up to seven times more compute efficiency than its larger competitors. The stock has shown strong momentum with a 48.58% return over the past six months. For deeper insights into Cloudflare’s growth potential and comprehensive financial analysis, including 13 additional ProTips, check out the detailed research report available on InvestingPro.
In other recent news, Cloudflare Inc. has introduced Cloudflare for AI, a suite of security tools designed to protect artificial intelligence applications from threats like data leakage and unauthorized access. This launch reflects Cloudflare’s commitment to supporting AI adoption with a focus on security. On the financial front, JMP analysts have maintained a Market Outperform rating and a $180 price target for Cloudflare, citing the company’s innovation in AI and developer strategies. TD Cowen also reaffirmed a Buy rating with a $162 target, highlighting Cloudflare’s goal of achieving $5 billion in annual recurring revenue by 2028 and its strategic initiatives to expand its developer platform.
RBC Capital Markets adjusted its price target for Cloudflare to $148 from $170, maintaining an Outperform rating despite a broader compression of peer multiples affecting valuation benchmarks. Truist Securities expressed continued confidence in Cloudflare with a Buy rating and a $175 price target, noting the company’s strategic initiatives aimed at growth among large customers and developers. Cloudflare’s management has set an ambitious goal to surpass $5 billion in revenue by 2028, a target that reflects the company’s confidence in its growth trajectory. The company’s strategic initiatives and market strategies are seen as key drivers for its continued growth and value creation for shareholders.
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