Why Cloudflare Stock Popped on Tuesday

Core Viewpoint - Bank of America upgraded Cloudflare stock from underperform to buy, highlighting the company's artificial intelligence (AI) business as a key driver for this decision [1][4]. Group 1: Company Overview - Cloudflare is often perceived primarily as a cybersecurity company, with its security products achieving a 33% market penetration [2]. - The company has been expanding its offerings beyond cybersecurity, deploying graphics processing units (GPUs) to support AI workloads in the cloud [3]. Group 2: Financial Performance - Cloudflare has maintained a 36.5% average annual revenue growth rate over the last three years, although it is not yet profitable under GAAP [5]. - The company generated $166.5 million last year after accounting for capital expenditures and capitalized software costs [5]. Group 3: Market Valuation - Cloudflare's market capitalization stands at$44.8 billion, resulting in a high valuation of 269 times trailing free cash flow and 194 times projected 2025 free cash flow [6]. - Despite a potential growth rate of 30% annually over the next three years, the current valuation is considered expensive [6].