Cloudflare, Inc.

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Bullish +60

NET Stock Surges 65% in 6 Months: Should You Hold or Book Profits?

AI integration Company update Customer growth AI-generated analysis

πŸ“ˆ NET shares surged 64.8% in six months, outperforming the Zacks Internet - Software industry and peers like F5 and Zscaler.

πŸ€– Enterprises are adopting Cloudflare's Zero Trust and SASE platforms to securely deploy AI agents, creating a new growth opportunity.

🏒 A large U.K. government agency canceled its proposal with a legacy vendor and reevaluated the project using Cloudflare's agents-first security approach.

πŸ’° Second-quarter 2026 revenues grew 36% year-over-year to $696.1 million, driven by strong momentum among large customers.

πŸ‘₯ The company added over 80,000 paying customers in Q2, resulting in a 74% year-over-year growth in its paying customer base.

πŸ“Š Large customers now represent 73% of total revenue, pushing dollar-based net retention to 120%.

πŸ“‰ Non-GAAP gross margin decreased to 73.1% as higher paid traffic and AI workloads increase infrastructure costs.

πŸ’Έ Premium valuation is evident with a forward P/S ratio of 35.28X, significantly higher than the industry average of 4.42X.

πŸ›‘οΈ Cloudflare's developer platform provides direct connections to companies building AI agents, facilitating security service adoption.

πŸ“‰ Zacks Rank #3 (Hold) reflects a cautious stance due to high valuation despite strong revenue growth and market share gains.

Bullish Signals
  • NET shares surged 64.8% in six months, significantly outperforming the Zacks Internet - Software industry and peers like F5 and Zscaler.
  • Growing enterprise demand for securing AI agents is driving significant market share gains for Cloudflare's Zero Trust and SASE platforms.
  • A large U.K. government agency canceled its proposal with a legacy vendor and reevaluated the project using Cloudflare's agents-first security approach.
  • Second-quarter 2026 revenues grew 36% year-over-year to $696.1 million, driven by strong momentum among large customers.
  • The company added over 80,000 paying customers in Q2, resulting in a 74% year-over-year growth in its paying customer base.
  • Large customers now represent 73% of total revenue, pushing dollar-based net retention to 120%.
  • New customer bookings grew at their fastest rate in more than five years, while pipeline generation increased at its fastest sequential pace in five years.
Risk Factors
  • Non-GAAP gross margin decreased to 73.1% as higher paid traffic and AI workloads increase infrastructure costs.
  • Continued growth in AI and developer workloads could require higher infrastructure spending, potentially limiting near-term margin expansion.
  • NET trades at a premium valuation with a forward P/S ratio of 35.28X, significantly higher than the industry average of 4.42X.
Full Analysis
Cloudflare Inc. (NET) shares have surged 64.8% over the past six months, significantly outperforming its Zacks Internet - Software industry peers and competitors like F5, Zscaler, and Check Point. The stock's strong performance is driven by growing enterprise interest in securing artificial intelligence (AI) agents using Cloudflare's Zero Trust and Secure Access Service Edge (SASE) platforms. Management highlights that while traditional vendors focus on human users, Cloudflare is positioning its security model around the increasing volume of AI agents, successfully winning over major clients like a large U.K. government agency. Cloudflare reported robust financial growth in the second quarter of 2026, with revenues increasing 36% year-over-year to $696.1 million. The company added more than 80,000 paying customers and saw its large-customer base grow by 74% year-over-year. Large customers now account for 73% of total revenue, contributing to a dollar-based net retention rate of 120%. New customer bookings reached their fastest growth rate in over five years, while pipeline generation also accelerated sequentially. Despite strong top-line growth, Cloudflare faces margin pressure as its non-GAAP gross margin declined 320 basis points to 73.1% due to a changing traffic mix and increased infrastructure costs associated with AI workloads and Workers usage. The company trades at a premium valuation with a forward price-to-sales ratio of 35.28X, compared to an industry average of 4.42X and peers ranging from 4.54X to 7.93X. Analysts maintain a Zacks Rank #3 (Hold) rating, suggesting investors should consider the stock's high valuation alongside its strong revenue momentum.