Cloudflare, Inc.

🇺🇸New York Stock Exchange
Back to all articles
Cloudflare, Inc. stock analysis NET overview
Slightly Bearish -15

Cloudflare Stock Rockets Higher on AI "News." But Is It Really a Buy Now?

📉 Cloudflare stock dropped after Q1 2023 earnings due to lowered full-year revenue guidance amid economic headwinds.

🚀 The company's share price rebounded following announcements about AI security tools and partnerships with generative AI startups like Character.ai.

🤝 Cloudflare previously partnered with Nvidia in April 2021 to integrate AI computing infrastructure, predating current market hype.

💰 Management revised full-year 2023 revenue outlook down from $1.34 billion to approximately $1.28 billion.

📊 Shares are currently trading at nearly 15 times expected 2023 sales with variable free cash flow reported quarterly.

⚠️ The article characterizes the AI news as a continuation of existing strategy rather than a transformative new catalyst for immediate investment.

🛑 The author recommends passing on buying Cloudflare stock right now while waiting for market sentiment to stabilize.

📈 Motley Fool Stock Advisor recently excluded Cloudflare from their list of ten best stocks to buy.

Bullish Signals
  • Cloudflare's internet security suite includes specific tools designed to ensure data safety for AI companies operating in the cloud.
  • Multiple generative AI startups, including Character.ai and Leonardo.ai, are actively using Cloudflare's R2 Storage for managing massive training datasets.
  • The company has established a long-standing partnership with Nvidia since 2021 to fill its infrastructure with GPUs and software models for AI.
Risk Factors
  • Cloudflare lowered its full-year 2023 revenue guidance from $1.34 billion to approximately $1.28 billion due to economic headwinds.
  • The company is dealing with macroeconomic speedbumps that have impacted its financial trajectory for the year.
  • Free cash flow remains variable from one quarter to the next, indicating inconsistent operational liquidity.
  • The AI-related announcements are described as not being game-changing revelations that should independently inform an investment decision.
Full Analysis
Cloudflare (NYSE: NET) stock recovered from a post-Q1 2023 earnings decline following announcements regarding its involvement in generative AI. The company highlighted that its internet security suite offers tools for AI data safety and revealed that several generative AI startups, including Character.ai and Leonardo.ai, utilize Cloudflare's R2 Storage for managing training datasets. Despite the market's positive reaction to these AI-related press releases, the article argues that the news is not entirely new. Cloudflare had previously announced a partnership with Nvidia in April 2021 to integrate GPUs and software models into its infrastructure, implying early involvement in the AI sector before the current hype cycle. The author advises investors to exercise caution, noting that the stock's sell-off after lowering full-year 2023 revenue guidance from $1.34 billion to $1.28 billion was justified by macroeconomic headwinds. With shares trading at nearly 15 times expected sales and variable free cash flow, the recommendation is to wait for AI hype to cool before considering a position. The article concludes that while Cloudflare has long-term prospects, it will likely experience a bumpy ride. The author suggests buying in small batches over time rather than chasing the stock immediately after the AI announcements, citing Motley Fool Stock Advisor's recent exclusion of Cloudflare from their top ten picks.