After the closing bell Thursday, Cloudflare (NET -7.63%) reported strong fourth-quarter earnings results that carried its share price above $150 for the first time since 2021. But Morgan Stanley analyst Hamza Fodderwala has outlined a bull-case scenario for the stock to advance by another 16% to $175 per share by year's end, and he may revise his forecast higher in light of its strong performance in the recent quarter.
"We believe 2025 could be a breakout year for Cloudflare," Fodderwala wrote in a recent note. He supported that prediction by highlighting the convergence of several tailwinds for the company, including increased sales team productivity and the monetization of new artificial intelligence (AI) products.
Here's what investors should know about Cloudflare.
NYSE: NET
Key Data Points
Cloudflare looked strong in the fourth quarter
Cloudflare provides application, network, and security services that protect and accelerate IT infrastructure. It operates the fastest cloud network on the planet, and handles about 20% of all internet traffic. That affords Cloudflare deep insight into performance issues and security threats across the web, which continuously enhances its ability to route traffic quickly and safely.
It reported strong results in the fourth quarter, beating Wall Street's expectations on the top and bottom lines. Its customer count increased by 25% to 237,714 -- marking its third straight quarter of acceleration in customer growth -- and its average established customer spent 11% more than a year prior. In turn, revenue climbed by 27% to $460 million, and non-GAAP net income increased by 27% to $0.19 per diluted share, a 2 percentage point acceleration from the previous quarter.
Last year, Cloudflare hired former Palo Alto Networks President Mark Anderson to lead its sales organization. That personnel change was part of a broader effort to improve its go-to-market execution, and the company has made good progress. CEO Matthew Prince said on the fourth-quarter earnings call that sales productivity showed a double-digit percentage improvement for the fifth consecutive quarter.
Prince also discussed the strong adoption of the company's Workers development platform, particularly for artificial intelligence use cases. He said Workers is positioned to "become the go-to platform for developers who want the best price performance for AI inference and agentic workflows."
Image source: Getty Images.
A likely winner in edge artificial intelligence
Edge clouds provide infrastructure services from the network edge -- in other words, from locations that are physically near their end users. Grand View Research estimates edge computing sales will grow at an annualized rate of 36% through 2030, driven by demand for edge AI services. Cloudflare began leaning into that opportunity in earnest with its launch of R2 Storage and Workers AI in 2023.
R2 Storage lets developers cost efficiently store large amounts of data for training AI models. And Workers AI is an inference service, supported by Nvidia GPUs, that lets developers run AI applications on Cloudflare's network. Those products are compelling not only because Cloudflare has the fastest cloud network, but also because that network is agnostic, meaning it integrates with public clouds like Amazon and Microsoft.
Importantly, Forrester Research recognized Cloudflare as the market leader in edge development platforms, ranking Workers higher than similar products from Amazon, Microsoft, and Fastly. Likewise, International Data Corporation ranked Cloudflare as a segment leader in its latest report on edge delivery services, highlighting its focus on AI as a key strength.
Cloudflare stock looks expensive
Wall Street expects Cloudflare's adjusted earnings to grow by 15% in the next four quarters, and increase at an annualized rate of 37% over the next three years. In that context, its current valuation of 200 times adjusted earnings looks expensive. But Wall Street may be underestimating the company's future growth.
Cloudflare's earnings beat analysts' consensus estimates in the last six quarters by an average of 27%. If that pattern continues, the stock's current valuation may look more reasonable in hindsight. But investors should be careful chasing this stock at its current price. A more prudent course of action would be to add Cloudflare to your watch list and wait for opportunities to buy shares on dips.
