Cloudflare, Inc. (NET): A Bull Case Theory

We came across a bullish thesis on Cloudflare, Inc. on Compounding Your Wealth’s Substack by Sergey. In this article, we will summarize the bulls’ thesis on NET. Cloudflare, Inc.'s share was trading at $200.21 as of November 28th. NET’s forward P/E was 161.29 according to Yahoo Finance.

Cloudflare, Inc. operates as a cloud services provider that delivers a range of services to businesses worldwide. NET delivered a strong Q3 2025 performance with $562 million in revenue, growing 31% year over year and 10% sequentially, supported by robust billings, record net new ARR, and a 42% surge in RPO to $2.14 billion. Dollar-based net retention rose to 119%, reflecting deeper multi-product adoption across its expanding enterprise base of nearly 296,000 customers, including more than 4,000 large accounts.

Profitability improved with a 15.3% operating margin and a 13.3% free cash flow margin, even as gross margin compressed to 75.3% due to higher AI-related traffic and product mix. Management emphasized improving revenue quality, rising multi-year commitments, and strong sales productivity, supported by a rapidly scaling partner ecosystem that is doubling bookings and accelerating SASE adoption. Workers AI continued to expand as GPU utilization climbed toward 70–80%, positioning Cloudflare as an edge inference leader for top AI firms seeking lower latency and better cost efficiency than centralized hyperscaler clusters.

Zero Trust and SASE maintained strong momentum, with customers consolidating legacy tools onto Cloudflare One, while R2 Storage and the D1 database gained traction as enterprises adopted multi-cloud architectures and built stateful AI applications at the edge. Strategic partnerships with Visa, Mastercard, American Express, Coinbase, and Oracle reinforced Cloudflare’s role in defining secure AI interactions and emerging agentic-web monetization models.

Large enterprise wins, including multimillion-dollar deals with media, fintech, and government agencies, showcased the platform’s breadth and consolidation advantages. Despite short-term gross-margin pressure, dilution risk, and leadership transition, Cloudflare raised full-year guidance and reiterated long-term targets, underscoring confidence in durable growth, expanding AI monetization, and a path toward a $5 billion revenue run rate by 2028.

Previously we covered a bullish thesis on Cloudflare, Inc. (NET) by Oliver | MMMT Wealth in April 2025, which highlighted its strong network effects, sustained 20%+ growth, and an approaching profitability inflection point. The company’s stock price has appreciated approximately by 87.44% since our coverage. This is because the thesis played out. The thesis still stands as execution remains robust. The latest author shares a similar view but emphasizes Cloudflare’s accelerating enterprise and AI-driven momentum.

Cloudflare, Inc. is not on our list of the 30 Most Popular Stocks Among Hedge Funds. As per our database, 59 hedge fund portfolios held NET at the end of the second quarter which was 65 in the previous quarter. While we acknowledge the potential of NET as an investment, we believe certain AI stocks offer greater upside potential and carry less downside risk. If you're looking for an extremely undervalued AI stock that also stands to benefit significantly from Trump-era tariffs and the onshoring trend, see our free report on the best short-term AI stock.

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Disclosure: None.