How Cloudflare’s AI push is reshaping the investment story

Cloudflare (NET) has drawn fresh attention after strong fourth quarter 2025 results and new AI focused launches, including Workers AI, Cloudflare Mesh, and Agent Cloud, alongside a security partnership with Wiz.

Together, these updates put more focus on Cloudflare’s role in securing and connecting AI applications for large organizations, from protecting AI endpoints to stitching together private networks for agents across multiple clouds.

The recent AI product launches and Wiz partnership appear to sit alongside strong momentum, with an 8.34% year to date share price return and a very large 3 year total shareholder return. This suggests that sentiment around Cloudflare’s long term AI role has been building.

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With Cloudflare shares up 8.34% year to date and a very large 3 year total shareholder return, plus a last close of US$212.36 sitting below the average analyst target of US$231.85, is there still a gap to exploit, or is the market already pricing in future growth?

Most Popular Narrative: 9% Undervalued

At a last close of $212.36 versus a narrative fair value near $232, Cloudflare is framed as modestly undervalued, with that gap resting on a specific AI and security thesis.

The accelerating adoption of AI, explosion in global web traffic, and proliferation of IoT devices are driving increased demand for fast, secure, and resilient cloud-native infrastructure, Cloudflare's core strength, evidenced by strategic partnerships with major AI companies and record-breaking DDoS mitigation, positioning the company for sustained top-line revenue growth and strengthening customer retention.

Curious what kind of revenue path and future margins sit behind that fair value, and how long it could take earnings to catch up with AI expectations.

Analysts in this widely followed narrative are tying their valuation to a future where Cloudflare is not only profitable, but growing earnings at a healthy clip and supporting that with revenue expansion that outpaces the broader US market.

Those assumptions sit alongside expectations for higher returns on equity over the next few years and a future P/E multiple that is far above the wider US IT industry, which is a key ingredient in reaching a fair value above the current share price.

All of this is being discounted back at a 9.19% rate. Any change in growth, profitability, or perceived risk could shift the narrative fair value closer to or further from where Cloudflare trades today.

Result: Fair Value of $232 (UNDERVALUED)

However, the story could shift quickly if large enterprise deals stumble or if heavier regulation and competition keep pressure on margins and long term earnings potential.

Another View: What Price Is the Market Really Paying?

While the AI narrative points to a fair value near $232, the current P/S ratio of 34.5x tells a much tougher story. It sits far above the US IT industry at 1.8x, peers at 11.2x, and a fair ratio of 12.9x, which signals meaningful valuation risk if sentiment cools.

For investors comparing the story to the sticker price, the question is simple: is this premium a margin of safety on future AI wins or a thin cushion if expectations reset?

Next Steps

With sentiment clearly split between AI upside and valuation risk, it makes sense to look at the numbers yourself and move quickly to form your own stance using our breakdown of 1 key reward and 1 important warning sign

Looking for more investment ideas?

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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.