Although BOFA values Cloudflare property, valuation is also important.
After Bank of America analysts double-upgraded the stock from underperform ( i .e., sell ) to buy, as reported this morning, Cloudflare ( NET 2.61 % ) stock surged 4.5 % through 10:10 a.m. ET on Tuesday.
Curiously, BofA upgraded Cloudflare, which is frequently seen as a , for a completely different reason: BofA likes Cloudflare’s artificial intelligence ( AI ) business.
Two sides of Cloudflare
When reporting profits, Cloudflare doesn’t split its business into distinct segments. As a result, the company has historically been viewed as a security investment by numerous investors, which is no shock. According to Straet Insider, the company’s security products now have a 33 % market penetration.
Over the past year and a half, Cloudflare has also been deploying graphics processing units ( GPUs ) across its network, which enable Cloudflare customers to run AI workloads in the cloud, as my colleague pointed out last month.
In other words, as time goes on, Cloudflare, a security property, is gaining in importance as an AI stock.
BofA thinks that Cloudflare’s AI-as-a-service giving “is already resonating with clients” and has become” the primary product Ssl customers are looking to acquire in the next twelve months.” BofA isn’t simply upgrading the share; it’s also claiming that Cloudflare is now on track to meet or exceed full-year income guidance. In addition, BofA claims the company may grow as fast as 30 % annually over the next three years. Its value target has almost tripled, reaching$ 160 per share.
Can I obtain Cloudflare investment?
According to S&, P Global Market Intelligence files, Cloudflare has maintained a 36.5 % average annual earnings growth rate over the past three years. The company did generate$ 166.5 million last year ( after deducting capital expenditures and capitalized software costs ), despite not yet being profitable under generally accepted accounting principles ( ).
That is quite impressive. Even with a market cap of$ 44.8 billion, Cloudflare stock trades for a hemorrhage of 269 times trailing free cash flow and 194 days projected 2025 FCF. That seems too expensive, perhaps at a growth rate of 30 %.