September was a solid month for Cloudflare (NET -0.90%) as the stock jumped 13.8%, according to data supplied by S&P Global Market Intelligence.
The broader market edged lower last month, as evidenced by the 0.5% decline of the S&P 500 during the same period. However, Cloudflare -- which makes websites quicker and more secure -- bucked the trend, driven higher by improving investor sentiment and several positive business developments.
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Key business developments
In mid-September, Cloudflare announced the debut of its Accountable designation for artificial intelligence (AI) web crawling. Web crawlers are automated software systems or algorithms that continually browse the internet to index content -- a tool primarily used by search engines to catalog content. In recent years, crawlers have been used to collect data, including text, images, and code, which then form the data sets to train large language models (LLMs) and other AI systems.
Cloudflare's new setting allows customers to choose whether its sites can be "crawled" by AI training systems, and -- if so -- what data can be retrieved. This gives the companies "meaningful control over how their work is used," according to CEO Matthew Prince. Users can choose between search, AI training, and AI agents to determine the level of access crawlers have.
Late last month, Cloudflare unveiled a partnership with Deutsche Telekom, Europe's largest telecommunications provider. As part of the collaboration, the pair will directly interconnect their respective networks, "giving European organizations access to Cloudflare's global cloud platform, one of the largest in the world." Deutsche Telekom will also offer Cloudflare's connectivity cloud and security services to its customers, further expanding its market opportunity in Europe.
Finally, Cloudflare got a little love from Wall Street. Bernstein analyst Peter Weed raised his price target on the stock to $181 from $164 while maintaining a market perform (hold) rating. He notes that investor sentiment has rebounded for cybersecurity stocks as fears of being displaced by AI have been put to rest.
NYSE: NET
Key Data Points
So is Cloudflare stock a buy?
Cloudflare offers a large and growing suite of compute, storage, AI, networking, developer tools, and security products, and customers have been adopting them in record numbers. In Q2, the company reported accelerating revenue growth that climbed 36% year over year, with record growth in total paying customers, large customers, and developers on its platform, helping to highlight the opportunity ahead.
Renewed optimism has driven Cloudflare stock up 74% so far this year, with a commensurate increase in its valuation. It certainly isn't cheap at 33 times next year's expected sales. That said, the stock has soared 1,800% since its debut in late 2019 (as of this writing), which helps explain why some investors are still willing to pay up for Cloudflare -- and why it's worth a look despite its premium pricetag.
