Has Cloudflare (NET) Already Priced In Its AI Security Push? #AI

Cloudflare has delivered a very large 3 year return, yet on most broad checks the stock still screens as expensive rather than obviously cheap.

• The share price performance over the past 3 years is very large. This raises the bar for any new buyer looking for further upside from here.
• New AI driven security services, including the partnership with OpenAI around vulnerability management and Adaptive Intelligence for bot defense, can support expectations for long run growth but also leave the valuation exposed if that adoption or monetisation is slower than hoped.
• The broader valuation workup leans expensive, as Cloudflare scores 0 out of 6 on value checks, so this is not a clear bargain on traditional metrics.

The issue now is whether Cloudflare’s current price already reflects those ambitious growth hopes or still leaves enough room for a reasonable long term return.

Spot 89 AI infrastructure stocks that, like Cloudflare, sit at the intersection of AI workloads and security and could be setting up for their next big move.

Has Cloudflare Run Too Far on Sales?

P/S fits Cloudflare best because the story is still more about revenue scale than current earnings.

On this measure the stock is on a rich setting. Cloudflare trades at about 43.4x P/S, which is far above the IT sector average of roughly 1.8x and also well ahead of peer software players around 12.6x. A tailored fair P/S multiple for the business, which factors in its growth profile, margins, size and risk, sits closer to 16.0x, so the current valuation runs well beyond what this framework would usually ascribe.

Even with recent AI security announcements and a higher growth outlook, the stock price already assigns a heavy premium relative to that fair multiple and to peers. That leaves less room for error if Cloudflare’s AI driven services take longer to scale or prove harder to monetise than hoped.

On a P/S basis, Cloudflare screens as clearly overvalued relative to both peers and its own fair multiple.

See what the numbers say about this price — find out in our valuation breakdown.

The Cloudflare Narrative: What Would Justify Today’s Price?

Cloudflare’s valuation puzzle only really comes into focus once you spell out the specific future that would need to unfold for the current share price to look either stretched or conservative. This is where Simply Wall St Narratives come in as a structured bridge between today’s multiples and tomorrow’s assumptions on growth, margins and earnings that sit on the Community page. Each narrative turns that implied fair value into a concrete, testable view of the business that you can keep tracking over time as new information comes through.

Community views on Cloudflare are split between a fairly priced AI and security platform and a stock that already embeds a hefty quality premium.

Bull case: 8% undervalued

“Cloudflare’s early action building strategic positioning around the emerging Agentic Web and ‘Act 4’ initiatives, leveraging its unique reach across 20% of the Internet and broad AI partnerships, offers significant optionality for new high-margin transaction-based business models that could unlock new revenue streams and expand the addressable market…”

Read the full Bull Case to see why Cloudflare could be undervalued

Bear case: 83% overvalued

“So my view is simple: Cloudflare may be one of the cleaner infrastructure names in the Q-Day conversation, but the stock already prices in a lot of quality…”

Read the full Bear Case to see why Cloudflare could be overvalued

Do you think there’s more to the story for Cloudflare? Head over to our Community to see what others are saying!

The Bottom Line

Cloudflare screens as overvalued on traditional P/S checks, with a clear premium already attached to its AI and security story. That does not rule out strong future compounding, but it means the market is already paying up for that possibility rather than offering a discount. The crux for investors is whether Cloudflare can turn its AI driven security products into durable revenue and margin gains fast enough to justify keeping that premium multiple. The debate really comes down to one question: whether growth in those newer services materially outpaces what the current valuation already implies.

This article by Simply Wall St is general in nature. We provide commentary based on historical data
and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your
financial situation. We aim to bring you long-term focused analysis driven by fundamental data.
Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
Simply Wall St has no position in any stocks mentioned.

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