Cloudflare's Apple Intelligence Partnership, Large TAM, Generative AI Enabler Position It For Upside, Analyst Says

Cloudflare, Inc NET stock is up after Morgan Stanley analyst Keith Weiss upgraded it from Equal-Weight to Overweight and raised its price target from $92 to $130.

Cloudflare remains one of the most compelling secular stories in Weiss’ software coverage universe, given its large TAM (total addressable market), highly scalable network architecture, and emergence as a potential GenAI enabler as organizations look to adopt and experiment with LLMs (large language models).

The company is well-positioned to gain a share in the top two CIO spending priorities, Security and AI/ML.

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While Weiss has been on the sidelines historically, given a relatively high multiple (~17X NTM sales), he noted multiple tailwinds heading into 2025 that could drive upward estimate revisions and sustain, if not accelerate, revenue growth in an environment of increasing growth scarcity.

Given the compute-intensive nature, Weiss noted that more AI inference is done at the “edge,” which means on network devices closer to the end user, for cost, latency, and data security/residency reasons. Cloudflare Workers AI, a serverless GPU-powered platform on Cloudflare’s global network, provides all the foundational elements of running AI inference on more than 300 locations worldwide. Over 2 million developers are on the Cloudflare Workers platform.

Weiss’ checks indicate a solid demand for Cloudflare R2 (storage) for training AI models. While early days, Weiss noted that the upside from AI inference could be meaningful as adoption grows and Cloudflare serves ~80% of the top 50 GenAI startups. He also stressed the upside of Cloudflare as a critical partner for Apple Inc Intelligence, where the company plays a significant role in encrypting AI queries for hundreds of millions of devices. Weiss estimates this could add 2-3pts to revenue growth in 2026-28.

Cloudflare is in the early innings of monetizing a wider, multi-product platform addressing over $80 billion in spending across security, networking, AI, and application services. This includes adopting developer products, including R2, Workers, AI gateway for training, inference, and monitoring AI workloads, and enterprise SASE (secure access service edge), where share gains are growing. Weiss noted faster-growing SASE and Developer/AI products growing from over 20% of revenue today to over 40% by 2028, driving durable 25-30% revenue growth in the longer term.  

While Cloudflare has delivered consistent product innovation across multiple domains, it lacks a more strategic selling motion to fully monetize a large installed base of over 200K customers, including over 30% of Fortune 500. Adding well-respected enterprise sales leaders like Chief Revenue Officer Mark Anderson (former Palo Alto Networks, Inc head of sales) and Head of Product CJ Desai (former ServiceNow, Inc COO) can create a much-needed strategic selling motion with large enterprises.

Bottom line, with numerous product cycles in full gear, growing Edge AI contribution, and a fully ramped enterprise sales force ready to address this significant opportunity, Weiss noted that all the cards are aligned for a solid 2025 for Cloudflare, with revenue growth potentially accelerating throughout the year. This should sustain a premium multiple on higher estimates.

Weiss projected fourth-quarter revenue of $451.7 million (prior $455.3 million) and adjusted EPS of $0.18 (prior $0.16).

Price Action: NET stock is up 6.18% at $106.00 at last check Monday.

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