Cloudflare Analyst Turns Bullish On AI Momentum, Security Market Gains

BofA Securities analyst Madeline Brooks on Tuesday upgraded Cloudflare, Inc. NET from Underperform to Buy, raising the price forecast from $60 to $160.

According to Brooks, Cloudflare has a strong potential to become a leader in AI-as-a-Service as enterprises prefer this method for AI consumption. The company is gaining traction in network security, particularly in SASE, as enterprises look to modernize their security solutions with software-based options.

This momentum in AI and security is expected to drive a 30% compound annual growth rate over the next three years, up from the previous estimate of 25%.

As a result, the analyst raises the price target for Cloudflare, based on a 20x multiple of its CY26 EV/Sales.

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The analyst also notes that customers are forecasting an 8% increase in AI spending, reaching $100k per customer, which will account for 15% of total customer spending.

Additionally, Cloudflare is increasingly chosen over major hyperscalers like AWS, Oracle, and Azure due to its ease of use, scalability, and superior utilization benefits, Brooks adds.

The analyst highlights that Cloudflare’s network security products are gaining significant market share, with 33% penetration and more than 50% of new spending in the near term expected to be directed toward security solutions.

Based on this momentum, Brooks is bullish that Cloudflare will meet or exceed its full-year revenue guidance.

However, the analyst notes potential risks, including the company's target of $5 billion in revenue for 2028, which assumes a revenue reacceleration and growth that is about 400 basis points higher than the average peer group forecast.

Achieving this goal will require near-perfect go-to-market execution, particularly with Enterprise customers, who have historically been a weaker segment for Cloudflare.

Additionally, the analyst cautions that AI could take longer to contribute significantly to revenue, given the nascent stage of the market and the challenges around pricing strategies.

Price Action: NET shares are trading higher by 2.4% to $126.91 at last check Tuesday.

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