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 $190.12 as of June 25^th. NET’s forward P/E was 232.56 according to Yahoo Finance.

Cloudflare is a leading global cloud services provider operating one of the world’s largest and most interconnected networks, with infrastructure in 335+ cities across 125+ countries and 348 Tbps of capacity. Its integrated platform delivers security, performance, and developer solutions at scale, making it essential infrastructure for 20% of the internet.

With a TAM exceeding $100 billion across high-growth segments like CDN, SASE, and edge computing, Cloudflare is well-positioned for sustained expansion. Recent product momentum has been significant: Workers.ai secured a record $130M contract, and AI-related workloads surged, reflecting rising demand for Cloudflare’s AI-ready infrastructure.

Innovations in Zero Trust, serverless compute, and storage are winning large enterprise contracts, including multi-year deals with Fortune 500 companies, U.S. federal agencies, and international infrastructure providers. Customer growth accelerated to +27% YoY, while RPO and billings growth outpaced revenue growth, signaling future acceleration. Net new ARR rose +19% YoY in Q1, and a Q2 beat could push it to a record high.

Operating efficiency improved, with FCF margin up to 11.1%, gross margin at 77.1%, and operating margin at 11.7%. Despite SBC at 22% of revenue, shareholder dilution remains minimal at 2.1% YoY. Dollar-Based Net Retention stabilized at 111%, and Cloudflare continues to scale Zero Trust adoption, now recognized in Gartner’s 2025 SSE Magic Quadrant and other key industry reports.

While valuation is elevated—trading at a 2026 PEG of 6.7—the premium reflects Cloudflare’s execution strength, durable moat, and leadership across edge compute and AI. With strong fundamentals and multiple growth levers, Cloudflare remains a compelling long-term compounder.

Previously we covered a bullish thesis on Cloudflare, Inc. by Northwest Frontier Capital in May 2025, which highlighted strong enterprise adoption, contract wins, and Workers platform growth. The company’s stock price has appreciated approximately by 23% since our coverage. This is because the thesis played out. Sergey shares a similar view but emphasizes Cloudflare’s AI infrastructure and Zero Trust momentum.

NET isn't on our list of the 30 Most Popular Stocks Among Hedge Funds. While we acknowledge the risk and potential of NET as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and have limited downside risk. If you are looking for an extremely cheap AI stock that is also a major beneficiary of Trump tariffs and onshoring, see our free report on the best short-term AI stock.

READ NEXT: 8 Best Wide Moat Stocks to Buy Now and 30 Most Important AI Stocks According to BlackRock.

Disclosure: None. This article was originally published at Insider Monkey.