Cloudflare shares rose 16% before the bell on Friday following the company's updated forecasts, according to reports from Reuters. The cloud services firm's stock performance reflects investor confidence in the company's strategic positioning to capitalize on growing enterprise spending on AI infrastructure. The results were reported after markets closed on Thursday, demonstrating strong market response to the company's AI-driven growth strategy.
Cloudflare now expects full-year revenue of $2.86 billion to $2.87 billion, up from its prior expectation of $2.805 billion to $2.813 billion, as reported by Reuters. The company also lifted its adjusted earnings per share forecast to a range of $1.25 to $1.26 from its earlier estimate of $1.19 to $1.20. These enhanced projections reflect the company's confidence in sustained demand for its networking and security products driven by AI adoption across enterprise customers. The updated outlook is also ahead of analysts' consensus estimate of $2.81 billion, according to LSEG data, demonstrating the company's strong performance relative to market expectations. The company reported earnings per share of $0.29 on revenue of $696 million, beating Wall Street estimates of an EPS of $0.27 on revenue of $666 million, according to Fiscal.ai data.
According to Reuters, analysts at TD Cowen noted that Cloudflare is "well-positioned to play a lead role as AI unfolds." The company added about 2 million developers in the second quarter alone, surpassing the 1.5 million it added last year. Morgan Stanley analysts highlighted that Cloudflare's Workers developer platform was its fastest-growing segment, amid a shift toward a usage-based model. Morgan Stanley described Cloudflare as a "compelling picks-and-shovels play" on AI adoption, citing its ability to support inference workloads at the edge and its consumption-based business model. The company's Workers platform has emerged as one of its fastest-growing businesses as developers increasingly build and run AI applications closer to users. Morningstar added that Cloudflare's consumption-based business model is benefiting from increased AI spending, with the company's distributed network positioning it to benefit as enterprises look for lower-latency and more cost-efficient alternatives to centralized cloud AI processing.
Developer adoption continued to accelerate significantly, with the number of developers using Workers increasing to 7.4 million from 4.5 million in December, as reported by Reuters. Channel partner sales grew 67% during the quarter and accounted for 31% of total revenue, reflecting stronger enterprise demand. Chief Executive Matthew Prince said the company's momentum accelerated during the second quarter, supported by record additions of large customers, stronger developer adoption and growing enterprise demand. "It's clear that the agentic future needs a new kind of cloud. Developers are flocking to Cloudflare because our Workers developer platform gives them what they need to build that agentic future," Prince said during the earnings call. He described the company as "the fastest, we're the most secure, and the most cost-effective place to build, deploy, and scale agents and the code they generate."
As reported by Reuters, San Francisco-based Cloudflare's security business could benefit as companies look to protect AI-powered applications and workers from increasingly sophisticated cyber threats. The company's shares have gained over 44% so far this year, compared with a near-77% rise in rival CrowdStrike and a 95% jump in Palo Alto Networks. The stock trades at over 190 times its forward price-to-earnings ratio, compared with over 145 for CrowdStrike, according to LSEG-compiled data. Prince also revealed that more than half of the traffic flowing across Cloudflare's network was non-human for the first time during the quarter as AI agents increasingly interacted with websites and online services, describing this as "a fundamental rewrite of the Internet." Morningstar noted that the company's expanding mix of security, edge computing and AI infrastructure offerings, along with a growing enterprise customer base, strengthens its long-term positioning.
The earnings follow Amazon.com's strongest cloud growth in more than four years, as reported by Reuters. Amazon noted that it won't have enough capacity to meet all demand this year, highlighting the broader AI infrastructure boom. TheFly reports that TD Cowen raised its price target on Cloudflare to $355 from $300 while maintaining its 'Buy' rating, saying that the company set records for year-over-year net additions across all large customer tiers and large contracts. Barclays also raised its price target to $355 from $300 while reiterating its 'Overweight' rating. Morningstar described Cloudflare as a "compelling picks-and-shovels play" on AI adoption, while retail sentiment on Stocktwits around Cloudflare trended in the 'extremely bullish' territory with message volumes at 'high' levels. The company's shares are up 44% year-to-date and 32% over the past 12 months, outperforming the Vanguard Information Technology Index Fund ETF which is up 38% over the past 12 months.
