Cloudflare Rises 9% in 3 Months: Should You Hold or Fold NET Stock?

Core Viewpoint - Cloudflare, Inc. has shown strong performance with an 8.8% stock increase over the past three months, significantly outperforming the Zacks Internet – Software industry, which declined by 2% during the same period, driven by strong fundamentals and AI-driven growth initiatives [1] Financial Performance - In Q1 2025, Cloudflare reported revenues of $479.1 million, a 27% year-over-year increase, indicating robust demand from large customers [2] - The number of customers paying over $100,000 annually increased by 23% year-over-year to 3,527, with revenue from this segment growing by 32%, now representing 69% of total revenues, up from 67% in the previous year [3] - Operating income reached $56 million, a 32% increase from the prior year, with operating margin expanding by 50 basis points year-over-year to 11.7% [4] Growth Initiatives - Cloudflare is focusing on AI and expanding its Zero Trust security offerings, positioning itself for long-term growth [5] - In Q1 2025, the company secured significant contracts, including a 5.5-year contract worth $6.4 million with a Global 2000 company and a two-year contract worth $6.2 million with a major U.S. government entity [6] - The company is experiencing explosive growth in AI, with Workers AI inference requests up nearly 4,000% year-over-year and AI Gateway requests rising more than 1,200% year-over-year [7] Market Outlook - For Q2 2025, Cloudflare projects revenues between $500 million and $501 million, indicating a 24.88% increase from the prior-year quarter [9] - For the full year 2025, revenue guidance is set between $2.09 billion and $2.094 billion, suggesting a 25.39% increase from the previous year [10] Competitive Landscape - Despite strong growth, Cloudflare faces a decelerating revenue growth trend, with a notable decrease from 29% in 2024 to a projected 25% in 2025 [12][13] - The market for web infrastructure and security services is becoming increasingly competitive, with established players like Akamai, Fastly, and Amazon Web Services vying for market share [14][16]