In the battle for AI cloud-service dominance, heavyweights like Amazon, Google and Microsoft often take the spotlight.
But behind the scenes, lesser-known players like Cloudflare (NET) are quietly emerging as critical AI enablers — perhaps the gold under the sand for investors who are looking for the next Nvidia.
Cloudflare’s service speeds up the internet and protects it from bad actors. Its customers are primarily businesses, but also anyone trying to put content online or connect securely to the internet.
By placing their content behind Cloudflare’s network, businesses can make their data move quickly, securely and efficiently, no matter where it’s accessed worldwide.
Unlike traditional cloud providers with massive, centralized data centers, Cloudflare has built a global network of machines spread across hundreds of locations.
Cloudflare headquarters in San Francisco on April 29, 2024. The company’s systems help web users move data quickly, efficiently and securely.
David Paul Morris/Bloomberg via Getty Images
“We tend to have lots of machines scattered in many, many places around the world,” CEO Matthew Prince said in an interview with The Verge. “Whereas, what you’d think of as the traditional cloud providers — the AWSes, the Google Clouds, the Microsoft Azures of the world — will have many, many computers but be more concentrated in individual places.
“We tend to cooperate really well with those providers. They tend to be much more like the data stores, the sort of the database companies that are out there, whereas we’re the networking company that connects those things together.”
Wedbush recently said that in 2025 the focus of the AI boom will shift from hardware titans like Nvidia to software disruptors, who are poised to steer those engines and empower enterprises to use data effectively.
Related: Analyst says big shift in AI coming in 2025 is huge tailwind for two stocks
Cloudflare’s role in this shift could soon gain more attention. With rising security demands and the ongoing expansion of the internet, analysts say, the company appears well-placed to capitalize on these growing trends.
What is unique about Cloudflare
Workers AI is essential to Cloudflare’s growth, positioning the company to compete in the growing AI market.
Workers AI extends Cloudflare’s Workers serverless platform, leveraging Nvidia GPUs to power AI workloads across Cloudflare’s global network. This enables users to access generative AI and other machine-learning tasks within Cloudflare’s infrastructure. (Machine learning refers to computers that understand and learn without human instruction.)
Cloudflare’s serverless and pay-as-you-go model means developers can focus on building their applications without worrying about managing infrastructure.
“What I think is unique about Cloudflare is two things. One, we are actually able to deliver inference incredibly close to where anyone is on Earth,” Prince said during the company’s Q3 earnings call. “But in addition to that, we’ve actually done the work to get higher utilization out of those same GPU resources.
“That means we can actually pass on the effective savings to our customers.”
Related: Analysts reveal AI stock picks for 2025, including Palantir
Cloudflare stock rose 27% in 2024, driven by strong financial performance and growing demand for cybersecurity and AI-enabled solutions, analysts say.
For Q3 Cloudflare reported a GAAP net loss of 4 cents a share, narrowed from 7 cents in the year-earlier period. Adjusted profit was 20 cents a share, up 25% from 16 cents a year earlier. Revenue was $430.1 million, up 28%.
Cloudflare continued to expand its reach among large customers, with 35% of the Fortune 500 now using its services.
“We added a record 219 new large customers [in Q3], those that pay us more than $100,000 per year, and now have 3,265 large customers, up 28% year over year,” Prince said.
Analysts raise Cloudflare’s stock price targets
Last week, Goldman Sachs analysts gave Cloudflare a significant boost, double upgrading the stock to a buy rating from a sell and nearly doubling the price target to $140 from $77.
The new target price indicates potential upside of 22% from Cloudflare shares’ closing price of $114.73 on Jan. 3.
Cloudflare has built “a unique globally distributed cloud platform” for its clients, the investment firm said, adding that the San Francisco group’s “easily scalable, flexible network architecture” could give it an advantage over competitors.
More 2025 stock market forecasts
Stocks face correction risk as Santa Claus Rally fails to deliverVeteran trader who correctly picked Palantir as top stock in ‘24 reveals best stock for ‘255 quantum computing stocks investors are targeting in 2025Goldman Sachs picks top sectors to own in 2025
Goldman also says Cloudflare will benefit from ramping sales and marketing productivity through 2025.
RBC Capital raised its Cloudflare price target to $123 from $99 with an outperform rating. The firm says 2025 is likely another good year for software.
Related: Veteran fund manager delivers alarming S&P 500 forecast
