NET: Elevated Expectations Will Likely Amplify Downside Risk From Future Outages

The analyst price target for Cloudflare has been raised from approximately $116 to about $135 per share, as analysts point to accelerating revenue growth, strong Q3 execution, and Cloudflare's strengthening position across AI, security, and SASE as key drivers supporting a higher fair value, despite modestly higher risk assumptions.

Analyst Commentary

Street research following Cloudflare's latest quarterly report has skewed positive, with multiple firms lifting price targets on the back of accelerating revenue growth and stronger than expected execution. Analysts highlight that Q3 revenue growth north of 30 percent, combined with a clean beat and raise quarter, reinforces confidence in both near term estimates and the multiyear opportunity in AI driven security, SASE, and edge based workloads.

Several bullish notes emphasize Cloudflare's growing traction with larger enterprise customers in the one million to five million dollar cohort, as well as continued momentum in Zero Trust and AI inference offerings. Forecasts pointing to a potential three billion dollar revenue run rate by late 2026 are cited as evidence that the company is scaling into a broader platform role in the emerging agentic web, which could support premium valuation multiples if execution remains consistent.

At the same time, recent outages and the broader dependency on major infrastructure providers have drawn attention to operational risk. While a major global bank characterized any long term impact as limited and expects AI demand and security share gains to offset near term reputational noise, the incident has nonetheless prompted some investors to reassess operational resilience and the potential for short term volatility around service reliability.

Across the board, the latest round of target hikes, some into the mid two hundreds and even around the three hundred dollar level, reflect a view that Cloudflare has re entered an acceleration phase. Analysts see the combination of faster growth, consistent margin progress, and an expanding product portfolio as sufficient to justify a higher fair value range, albeit with a narrower margin for error given the elevated expectations now embedded in the stock.

Bearish Takeaways

• Bearish analysts caution that the share price already discounts sustained growth above 30 percent, leaving limited room for multiple expansion if revenue momentum moderates or macro conditions soften.
• Some fieldwork has found little evidence of broad based SASE and edge compute adoption, raising concerns that current expectations may be ahead of actual enterprise deployment and could pressure growth assumptions beyond the near term.
• Recent outage related headlines underscore execution and reliability risk at a time when valuation is elevated, increasing the potential for sentiment swings if any further service issues or product delays emerge.
• A more balanced risk reward view has emerged in parts of the analyst community, with price targets raised but ratings held at neutral, reflecting concern that upside may be constrained if Cloudflare fails to consistently deliver beat and raise quarters.

What's in the News

• Truist raised its Cloudflare price target to $275 from $230, citing strong Q3 results, accelerating large enterprise customer momentum, and deepening adoption of SASE, Zero Trust, and AI inference products supporting upside to FY25 estimates (Bloomberg/Truist).
• Cloudflare issued new guidance for Q4 and full year 2025, targeting revenue of about $588.5 million to $589.5 million for Q4 and approximately $2.142 billion to $2.143 billion for 2025, both implying 28 percent year over year growth.
• Cloudflare announced a major agentic commerce initiative with Visa, Mastercard, American Express and others, using its Web Bot Auth and Trusted Agent Protocol to authenticate AI shopping agents and secure agent to merchant payments at global scale.
• Cloudflare expanded its connectivity cloud via native availability on Oracle Cloud Infrastructure, enabling joint customers to secure and manage hybrid and multicloud environments as AI workloads and network complexity grow.
• Cloudflare unveiled plans for NET Dollar, a US dollar backed stablecoin designed to power instant, secure transactions for AI agents and the emerging agentic web, positioning its platform at the intersection of payments, AI, and Internet infrastructure.

Valuation Changes

• The fair value estimate has risen modestly from approximately $116.43 to about $135.41 per share, reflecting a higher assessed intrinsic value.
• The discount rate has increased slightly from around 8.85 percent to roughly 9.09 percent, incorporating a modestly higher risk profile.
• The revenue growth assumption has edged up from about 24.80 percent to approximately 25.29 percent, indicating a small upward revision to topline expectations.
• The net profit margin has slipped marginally from roughly 7.00 percent to about 6.98 percent, signaling a very small reduction in long term profitability assumptions.
• The future P/E multiple has expanded from around 213.6x to approximately 232.9x, implying a somewhat higher valuation multiple on forward earnings.