Despite Valuation Concerns, Cloudflare (NET) Still Offers Strong Upside

Cloudflare Inc. (NYSE:NET) is among the best software infrastructure stocks to buy according to hedge funds. In a mid-December report, Stifel reiterated its positive view on Cloudflare Inc. (NYSE:NET) amid AI-driven security requirements becoming more central to enterprise risk management.

The firm highlighted that organizations are expanding the usage of generative and agentic AI. This expansion would mean cybersecurity teams will increasingly focus on controlling how AI is accessed and used internally, particularly to mitigate risks of unauthorized access, data leakage, and compromised AI outputs. This will, in turn, increase the demand for Identity, Data, Cloud, and Zero Trust Security solutions. Stifel’s analyst believes that Buy-rated Cloudflare Inc. (NYSE:NET) will be a beneficiary of these trends within its coverage universe.

Cloudflare Inc. (NYSE:NET) stock has performed strongly in 2025, delivering more than 80% returns as of January 7. Despite that strong performance, analyst consensus still indicates a 28% upside, with nearly 60% of analysts covering it assigning it a Buy or equivalent rating.

However, current valuation is a concern for some analysts, including those at Piper Sandler, who reiterated their Neutral rating on the stock this week. They also factored in a lower price-to-sales multiple, which resulted in a lower price target of $220, down from $249. While still seeing Cloudflare Inc. (NYSE:NET) as a best-in-class infrastructure company, the analysts said that the valuation fairly reflects most of its growth prospects.

Cloudflare Inc. (NYSE:NET) is a global cloud services provider offering a range of services, including content delivery network, cybersecurity, and DDoS mitigation.

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. This article is originally published at Insider Monkey.