Cloudflare Rises 9% in 3 Months: Should You Hold or Fold NET Stock?

Cloudflare, Inc. NET has gained 8.8% over the past three months. The stock has significantly outperformed the Zacks Internet – Software industry, which has declined 2% during the same period. This outperformance reflects strong investor confidence, supported by the company’s strong fundamentals, expanding enterprise adoption and AI-driven growth initiatives.

Additionally, strong first-quarter 2025 results have instilled investors’ confidence in the stock. The company reported revenues of $479.1 million, reflecting a 27% year-over-year increase, as demand from large customers remained robust.

The number of customers paying more than $100,000 annually rose 23% year over year to 3,527, with revenue contribution from this segment growing 32% and now representing 69% of total revenues, up from 67% in the year-ago quarter. Cloudflare also added a record number of customers spending more than $1 million and $5 million annually, growing these cohorts by 48% and 54% year over year, respectively.

Cloudflare’s profitability metrics also remained strong. The company reported operating income of $56 million, up 32% from the prior year, with operating margin expanding 50 basis points year over year to 11.7%. These improvements highlight the company’s ongoing focus on efficiency, productivity, and operational excellence.

Cloudflare, Inc. Price and Consensus

Cloudflare, Inc. price-consensus-chart | Cloudflare, Inc. Quote

Expanding AI & Security Offerings Aid Cloudflare’s Growth

With Cloudflare doubling down on AI and expanding its Zero Trust security offerings, the company is well-positioned for strong long-term growth. Its Zero Trust platform, which protects businesses from evolving cyber threats, continues to see robust adoption.

In the first quarter of 2025, Cloudflare secured a 5.5-year contract worth $6.4 million with a Global 2000 international business services company for its full Zero Trust portfolio, as well as a two-year Zero Trust contract worth $6.2 million with a major U.S. government entity. These wins further strengthen Cloudflare’s foothold in the enterprise security space.

In the AI space, Cloudflare is seeing explosive growth, with Workers AI inference requests up nearly 4,000% year over year and AI Gateway requests rising more than 1,200% year over year. The company is actively investing in next-generation technologies, such as its fast and powerful Model Context Protocol server, which is critical for enabling AI agents.

Leading companies like Asana, Atlassian, Block, PayPal, Sentry, and Stripe are building AI agent interfaces on top of Cloudflare Workers, drawn not only by the platform’s robust developer tools but also by Cloudflare’s deep expertise in Internet performance and security.

Cloudflare Provides Optimistic Outlook

For the second quarter of 2025, NET projects revenues between $500 million and $501 million. The Zacks Consensus Estimate for revenues is pegged at $500.77 million, suggesting a 24.88% increase from the prior-year quarter’s actual.

Non-GAAP earnings are pegged at 18 cents per share, which is in line with the consensus mark. The consensus estimate indicates a year-over-year decline of 10.00%. 

For 2025, NET projects revenues between $2.09 billion and $2.094 billion. The Zacks Consensus Estimate for 2025 revenues is pegged at $2.09 billion, suggesting a 25.39% increase from the prior-year quarter’s actual.

Non-GAAP earnings per share are expected to be between 79 cents and 80 cents. The Zacks Consensus Estimate for earnings is pegged at 79 cents per share. The estimate indicates a 5.33% year-over-year increase.

Everything Not So Rosy for Cloudflare

Though Cloudflare’s top line is growing at an impressive double-digit rate, the decelerating trend makes us slightly cautious about its prospects. While it reported 27% revenue growth in the latest reported quarter, this marks a notable deceleration compared to previous years. In 2024, revenues grew 29% year over year, lower than the 33% registered in 2023. This highlights a gradual slowdown in top-line expansion.

The company’s full-year 2025 revenue guidance of $2.09 billion to $2.094 billion implies just 25% growth, a further decline from its 2024 growth rate. This slowdown is concerning. If revenue growth continues to decelerate faster than expected, it could lead to a potential downside in stock price.

Additionally, the market for web infrastructure and security services in which Cloudflare primarily operates is growing highly competitive, where several well-established players like Akamai Technologies, Inc. AKAM, Fastly, Inc. FSLY and Amazon.com, Inc.’s AMZN Amazon Web Services are all competing for market share.

For instance, Akamai offers a broad suite of services, including its Content Delivery Network, EdgeWorkers, EdgeKV, and Global Traffic Management solutions. Fastly provides Compute@Edge, image optimization, streaming delivery services, and a robust security portfolio featuring Next-Gen WAF, DDoS mitigation, and API security.

Amazon provides offerings such as Amazon CloudFront, AWS, Lambda@Edge, Amazon WAF, API Gateway, and Bot Control. Additionally, the rise of new entrants and specialized niche players continues to intensify competitive pressures on Cloudflare.

Conclusion: Hold NET Stock for Now

Cloudflare demonstrates solid growth prospects driven by expanding AI and security offerings, contract wins, and improved guidance. However, a decelerating revenue growth trend and intensifying competition present near-term risks. Given this mixed outlook, maintaining a cautious hold stance on NET stock remains a prudent approach for now.

Cloudflare carries a Zacks Rank #3 (Hold) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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