Ricardo Pillai
2 min read
In This Article:
We came across a bullish thesis on Cloudflare, Inc. (NET) on Substack by Northwest Frontier Capital. In this article, we will summarize the bulls’ thesis on NET. Cloudflare, Inc. (NET)'s share was trading at $154.49 as of May 14th. NET’s forward P/E was 185.19 according to Yahoo Finance.
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Cloudflare’s Q1 earnings signal a pivotal transformation from a disruptive startup into a vital enterprise platform, driven by strong revenue growth and deepening enterprise adoption. Reporting $475 million in revenue, up 27% year-over-year and beating expectations, the company demonstrated significant traction among large customers, with revenue from clients spending over $100,000 annually rising 32% and now comprising 69% of total revenue. This shift reflects consistent success in securing substantial contracts, highlighting growing trust in Cloudflare’s platform across major organizations.
With dollar-based net retention steady at 111% and improved customer churn, Cloudflare is evolving from a discretionary expense to an essential service, reinforcing durable growth in a tough macro environment. The company’s software-defined, globally distributed network drives sales efficiency gains, creating a competitive moat grounded in superior performance and security. A defining highlight was a landmark five-year, $130 million contract expansion with an existing customer, underscoring Cloudflare’s ability to upsell and displace entrenched hyperscalers by offering enhanced network speed, cost benefits, and a modern platform. The Workers edge computing platform is a key growth engine, surpassing revenue expectations and positioning Cloudflare to disrupt the $56 billion cloud development market. Coupled with the longest-ever Zero Trust security contract, these wins demonstrate broad-based growth across application services, security, and developer tools, fueling a flywheel effect of deeper adoption and accelerated revenue.
With improved sales execution, faster cycles, and a growing pipeline under new CRO leadership, Cloudflare is well-positioned to exceed its conservative 25% revenue growth guidance for 2025. Strong contracted revenue growth and a robust “Rule of 40” profile point to sustainable profitability, making Cloudflare an attractive opportunity as it scales into a dominant enterprise platform despite a 22x EV/sales valuation.
Cloudflare, Inc. (NET) is not on our list of the 30 Most Popular Stocks Among Hedge Funds. As per our database, 55 hedge fund portfolios held NET at the end of the fourth quarter which was 44 in the previous quarter. While we acknowledge the risk and potential of NET as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than NET but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
