Cloudflare's AI Initiatives and Cybersecurity Advancements Spark Analyst Optimism

Cloudflare's Apple Intelligence Partnership, Large TAM, Generative AI Enabler Position It For Upside, Analyst Says - Cloudflare (NYSE:NET)

Keith Weiss cited its large TAM, scalable network architecture and emergence as a potential GenAI enabler behind the upgrade. 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. Also Read: Amazon's AWS CEO Teases Major AI Advancements 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. Also Read: Volkswagen Faces Fierce Labor Pushback Over Factory Closures, Wage Cuts Photo via T. Schneider/Shutterstock.com. Market News and Data brought to you by Benzinga APIs

Cloudflare offers 'one of the most compelling secular stories', MS upgrades By Investing.com

Investing.com -- Cloudflare (NYSE:NET) is "one of the most compelling secular stories" within the software sector, Morgan Stanley (NYSE:MS) analysts said Monday, upgrading the stock from Equal Weight to Overweight. The Wall Street firm also lifted its price target on Cloudflare from $92 to $130, implying over 22% upside from current levels. Cloudflare stock jumped more than 6% after Monday market open. According to Morgan Stanley, the cloud services provider is poised for sustained, if not accelerated, revenue growth in the coming years due to various factors, including its role in Edge AI and multiple product cycles. "Cloudflare remains one of the most compelling secular stories in our software coverage universe, given a large TAM (total addressable market), a highly scalable network architecture and emergence as a potential GenAI enabler as organizations look to adopt and experiment with LLMs," analysts led by Hamza Fodderwala said. They note that Cloudflare is also strategically positioned to capture market share in the top two Chief Information Officer (CIO) spending priorities, Security and AI/Machine Learning. Morgan Stanley highlights Cloudflare's potential to enable AI at the network edge, which is beneficial for cost, latency, and data security reasons. Cloudflare Workers AI, a serverless GPU-powered platform, is already showing solid demand, with more than 2 million developers using the platform. Cloudflare's role in encrypting AI queries for Apple (NASDAQ:AAPL) Intelligence could contribute an additional 2-3 percentage points to revenue growth in the years 2026-2028. The company is also starting to monetize a broader platform that spans security, networking, AI, and application services. Analysts expect that Cloudflare's SASE and Developer/AI products, which currently represent less than 20% of revenue, will grow to account for over 40% by 2028, driving long-term revenue growth of 25-30%. Furthermore, analysts point out the impact of seasoned enterprise sales leadership in driving larger deals. With the addition of industry veterans like Chief Revenue Officer Mark Anderson and Head of Product CJ Desai, Cloudflare is expected to enhance its strategic selling motion to fully capitalize on its large customer base, which includes over 30% of the Fortune 500. In summary, with multiple product cycles underway, increasing contributions from Edge AI, and a robust enterprise sales force, Morgan Stanley believes that "all the cards are aligned for a strong 2025 for Cloudflare with revenue growth potentially accelerating throughout the year." "This should sustain a premium multiple on higher estimates, in our view," they added.

Generative AI Backed Cybersecurity Stocks Cloudflare, Okta Have Near-Term Upside: Analyst - Cloudflare (NYSE:NET), Okta (NASDAQ:OKTA)

Weiss sought opportunities in companies with emerging product cycles, particularly those aligned with GenAI. Morgan Stanley analyst Keith Weiss noted that cybersecurity remains a top spending priority for organizations globally. Weiss noted longer-term tailwinds are intact as recent technological advancements (GenAI, Public Cloud) expand the attack surface area, creating new product opportunities for securing AI and leveraging AI to automate security operations. In the near term, the analyst flagged risks investors might not fully appreciate heading into 2025. Also Read: This Analyst Downgrades Upstart But Says SoFi Tech Could Become 'American Express' Of Fintech While the spending environment is showing signs of stability post-US elections, budgets remain tight, with CIOs and CISOs looking to consolidate multiple vendors. Some of the most significant security players (Palo Alto Networks, Inc PANW and CrowdStrike Holdings, Inc CRWD) have only recently increased near-term discounting and "platformization" efforts to drive consolidation and accelerate share gains. This is likely to have a broader negative pricing impact in 2025. The average security company derives ~7% of sales from the U.S. Public Sector. The Federal government spent over $20 billion annually on security products and services (+10% CAGR over the last 5 years), which has been a significant source of growth for security vendors in recent years. With the incoming U.S. administration proposing substantial cuts to federal spending through initiatives like DOGE (Department of Government Efficiency) and recent reports of downsizing CISA (Cybersecurity and Infrastructure Security Agency), this could be a headwind to IT/security budgets next year. After a significant rise in 2023, there are emerging signs that ransomware attacks may be peaking. Security stocks have outperformed broader software driven by multiple expansions on negative estimate revisions. Current security valuations are above the broader software and longer-term average, reflecting improving future growth rates and a more balanced risk-reward. Weiss sought idiosyncratic opportunities in companies with emerging product cycles, particularly those aligned with GenAI. This includes Cloudflare, Inc. NET, which has a chance in Edge AI inference. The analyst also favors Fortinet, Inc FTNT and Palo Alto Networks, given the network security refresh in the second half of fiscal 2025 and 2026. Turnaround stories such as Okta, Inc OKTA also commanded the analyst's attention. Weiss noted Fortinet as a multi-year positive revisions story with firewall refresh demand sustaining through 2027 and higher software attach rates driving stronger-for-longer recurring services growth from the refresh cycle. The analyst favored Okta due to the stabilizing demand environment, the easing of competitive headwinds, and the beginning of newer product cycles. Weiss also flagged Varonis Systems, Inc VRNS as the SaaS transition tailwind drives a further acceleration in ARR growth for the next 2-3 quarters and a stronger position as a GenAI enabler becomes more apparent given the rising priority of data security/governance. Weiss upgraded Cloudflare from Equal-Weight to Overweight and raised the price target from $92 to $130. The analyst upgraded Okta from Equal-Weight to Overweight and raised the price target from $92 to $97. In the longer term, Weiss continues to favor platform consolidators Palo Alto Networks and CrowdStrike Holdings but noted a minor upside in the near term as both deliberately discounted to consolidate market share in the longer term. Multiples for both stocks are above historical averages. The analyst flagged a more favorable setup for both in the second half of fiscal 2025. Price Actions: NET stock is up 6.52% at $106.34 at the last check on Monday. OKTA is up 3.79%. Also Read: Amazon And Walmart Dominate Black Friday As Online Sales Soar 14.6% Image via Shutterstock NETCloudflare Inc$106.446.62%WatchlistOverviewOKTAOkta Inc$80.543.84%CRWDCrowdStrike Holdings Inc$351.501.60%FTNTFortinet Inc$95.840.84%PANWPalo Alto Networks Inc$390.750.75%VRNSVaronis Systems Inc$50.330.74%Market News and Data brought to you by Benzinga APIs