Investors are quickly jumping on the artificial intelligence (AI) bandwagon, and this has had a significant impact on the stock market. One company that has experienced tremendous growth as a result is Cloudflare (NYSE: NET), with its stock rising an impressive 40% in the past three months. The company’s latest quarterly results indicate that this upward trend is likely here to stay.
Cloudflare’s fourth-quarter revenue saw a 32% year-over-year increase, reaching $362 million. This exceeded the consensus estimate of $353 million. The company’s full-year revenue also experienced a 32% increase, reaching $1.3 billion. Additionally, Cloudflare’s adjusted earnings per share increased from $0.06 in the previous year to $0.15, surpassing the consensus estimate of $0.12. Full-year earnings per share also rose substantially, from $0.13 in 2022 to $0.49 in 2023.
The company’s impressive growth can be attributed to robust customer spending and an increase in its customer base. Cloudflare ended 2023 with 189,000 paying customers, a 16% increase from the previous year. Notably, Cloudflare generates over 60% of its revenue from large customers who generate more than $100,000 in annualized revenue for the company. The number of large customers increased by 35% to 2,756 in 2023.
Cloudflare’s strong growth in customer spending is further reflected in the number of customers with annualized revenue over $500,000, which increased by 56%. The number of customers with revenue over $1 million also saw a substantial YoY increase of 39%.
One of the key drivers of Cloudflare’s growth is the company’s focus on AI. In September 2023, Cloudflare launched Workers AI, a platform that allows developers to build AI applications on its network without the need for expensive infrastructure. This platform has gained significant traction among customers, with the average number of daily Workers AI requests increasing ninefold from September to December. This suggests that Workers AI is not only a significant opportunity in itself but also a potential accelerant to the adoption of the Workers platform.
Cloudflare’s ambitious plan includes deploying GPUs in nearly every city that makes up its global network, providing developers with access to graphics processing units to run AI models efficiently. With Cloudflare’s global network covering 300 cities, this move positions the company to capitalize on the fast-growing AI-as-a-service market.
Given Cloudflare’s solid growth and its focus on AI, analysts expect the company to sustain its robust performance in the coming years. Cloudflare projects a revenue increase of 27% to $1.65 billion in 2024. Additionally, the company’s bottom line is expected to grow at an annual rate of 62% over the next five years.
Based on these projections, Cloudflare’s stock price could see a significant increase. Using the Nasdaq-100 index’s forward price-to-earnings multiple of 30 as a proxy for tech stocks, Cloudflare’s stock price could reach $164 in five years. This represents a 60% increase from current levels.
It’s important to note that while the future looks promising for Cloudflare, investors should always conduct their own research before making any investment decisions. The market is highly volatile, and it’s crucial to consider factors such as risk tolerance and diversification when investing.
In conclusion, Cloudflare’s impressive quarterly results and focus on AI have contributed to its significant stock price increase. With its expanding customer base and a growing market for AI solutions, Cloudflare is well-positioned for continued growth in the future. However, investors should exercise diligence and consider their own investment strategies before deciding whether to invest in Cloudflare.
