On Friday, Baird maintained its Outperform rating on Cloudflare Inc . (NYSE:NET) stock and increased the price target to $120 from the previous $100. The firm's analyst highlighted Cloudflare's position as one of the fastest-growing cybersecurity vendors, with an anticipated revenue growth of approximately 26% in 2025.
The company's impressive growth trajectory is supported by its current revenue growth forecast of 28% for FY2024, according to InvestingPro data.
Despite the stock's strong year-to-date performance of 30.41%, Cloudflare is considered one of the more expensive stocks, trading at roughly 17.5 times its expected 2025 sales. This high valuation aligns with InvestingPro's Fair Value analysis, which indicates the stock is currently overvalued.
The analyst noted that Cloudflare's high valuation could potentially cause short-term pushback from investors seeking a more attractive entry point into the stock. However, the firm believes the premium valuation is warranted due to Cloudflare's robust standing in the field of artificial intelligence.
The shift from AI training to AI inference is expected to benefit Cloudflare, along with the company's improved go-to-market execution. With a market capitalization of $37.26 billion and impressive gross profit margins of 77.53%, InvestingPro data reveals strong fundamentals supporting the company's premium positioning in the AI space.
Cloudflare's coverage ratio in the third quarter was reported at 53.6%, positioning it towards the lower end compared to its peers. Nonetheless, an improvement of approximately 95 basis points quarter-over-quarter suggests that the company has enhanced its business visibility.
The analyst's comments reflect a positive outlook on Cloudflare's future performance and market position. Despite the high valuation, the firm's confidence in the company's growth prospects and strategic positioning in AI and market execution underpins the raised price target.
In other recent news, Cloudflare has been the subject of several analyst upgrades and positive forecasts.
Citi maintained its Neutral rating on Cloudflare, noting that the company's Pool-of-Funds deals are encouraging significant purchases and improving visibility among large enterprises. Despite some mixed effects, Citi analysts believe that revenue headwinds from these deals are expected to diminish by 2025, contributing to Cloudflare's aspirations to achieve $5 billion in revenues.
Financial services firm Stifel upgraded Cloudflare from Hold to Buy, increasing the price target significantly to $136.00. This upgrade reflects Stifel's confidence in Cloudflare's potential for sustained top-line growth and improving profitability in the coming years, bolstered by recent high-quality leadership appointments and a successful go-to-market strategy.
Meanwhile, Morgan Stanley (NYSE:MS) upgraded Cloudflare from Equal-weight to Overweight, increasing the price target to $130.00. The firm cited several growth factors that could accelerate revenue throughout 2025, suggesting that Cloudflare could maintain a compound annual growth rate of 28% in revenue from 2023 through 2028.
On another note, Piper Sandler hosted an Infrastructure Software (ETR:SOWGn) Bus Tour, visiting several technology companies. Post-meeting reactions indicated heightened investor interest in Cloudflare, among others. The firm reported a generally positive sentiment from these companies regarding potential macro headwinds, a possible increase in IT budgets, and opportunities in AI.
These are recent developments that investors should keep an eye on as they provide an insight into Cloudflare's financial performance and future growth prospects.
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