Cloudflare (NET 0.98%) stock is soaring in Friday's trading. The company's share price was up 19.5% as of 2:40 p.m. ET amid the backdrop of a 0.9% decline for the S&P 500 index and a 1.4% pullback for the Nasdaq Composite.
Cloudflare published its fourth-quarter earnings after the market closed yesterday and reported sales and earnings performance that beat Wall Street's expectations. Even better, the company laid out very strong guidance for the current quarter and fiscal year.
Q4 beats contribute to Cloudflare stock's huge gains today
With its Q4 report, Cloudflare recorded non-GAAP (adjusted) earnings per share of $0.19 on sales of $459.9 million. Meanwhile, the average analyst estimate had called for adjusted earnings of $0.18 per share on sales of roughly $452.1 million.
Sales in the period were up 27% year over year, and the company closed out the period with a dollar-based net revenue retention (NRR) rate of 111% -- improving from a retention rate of 110% in the third quarter. NRR measures increased spending from customers already using the company's services. Outside of attracting new customers, increasing spending from existing clients is one of Cloudflare's key growth drivers.
Is Cloudflare one of the next hot AI stocks?
For the first quarter, Cloudflare guided for sales to come in between $468 million and $469 million. This target actually came in significantly below the average analyst estimate, which had called for sales of roughly $474.1 million. The company also guided for adjusted earnings per share of $0.16, falling short of the average Wall Street target's call for per-share earnings of $0.18.
Looking further out, Cloudflare anticipates sales between $2.09 billion and $2.094 billion for the full-year period -- falling slightly short of the average analyst estimate's call for sales of $2.1 billion. Meanwhile, adjusted earnings per share are projected to come in between $0.79 and $0.80 -- again missing the average analyst forecast's call for per-share earnings of $0.85.
But even with forecast shortfalls, commentary from management about the company's opportunities in artificial intelligence (AI) is powering huge valuation gains for the stock today. CEO Matthew Prince said that his company is seeing efficiency improvements in AI inference that are comparable to the big leaps forward in training efficiency recently reported by DeepSeek. While the two companies occupy very different places in the software industry, investors are betting that Cloudflare could be on the verge of major AI tailwinds.
